Still Rising, but Long Term Trouble May be Ahead

The rally continues and some very nice set ups are emerging. We believe that there is still money to be had short term. However, and it's a big however, we have to be prepared for reality to kick in next week when options expiration is out of the way, the bond market's continued weakness wears, and high energy prices refuse to pull back. We believe that this rally is the opportunity for long term players to sell and that we may be setting up for the first serious correction since early 2004. If the bulls can use strong tech earnings to push the QQQQ past $43, we may see a tradable rise into the $44 and even $45 area. Considering the great set ups we are now finding in our scans, such a scenario is a real possibility. Traders can make good money on the long side in this situation. As we mentioned yesterday, play what is in front of you, but don't get so caught up in the enthusiasm that you forget to take profits along the way. There are still some good opportunities to enter at support, but we would be very careful about chasing breakout stocks here. Next week we will get a better feel for how this immediate term rally is going to hold up. Right now we just want everyone to keep in mind that this rally, whether it takes us to fresh new highs or poops out here, is very likely the rally that smart money will use to do some real distribution.