Friday, August 11, 2006
By now the market is trained to buy any weakness related to terror events. Despite the fact that the market is in a precarious position here, programs kicked in and bought the gap down yesterday and prices closed near daily highs. Wanting on the recovery was significant volume. Likewise, the move just pushed the indices up near resistance levels once again. We will be surprised if there is much follow through from yesterday's move. We would be much more trusting of a rally effort if the market would pull back down near recent lows to regroup and shore up support. We are not seeing any decent long set ups and short set ups look very good here. However, there is some concern that we will get a bit of an overly exuberant follow through rally, which while doomed from the start, could put our shorts in jeopardy of stopping out before the market reverses again. This is why we recommend keeping position sizes small in this market. Program trading has played havoc with position traders on both sides of the trade lately.