This is a classic short set up.
Even so, something just doesn't quite seem right about shorting here. Firstly, it's the end of the month and typically the end of the month experiences strength due to increased liquidity in the market.
But more than that: Bank stocks continue to see leading money flow divergences, indicating that the sector that leads the market is poised to move higher. Then, if you drill back to the weekly charts, all three averages are exhibiting weekly buy signals.
Finally, and this one is most striking to us, is the fact that none of the ultrashort ETFs (exchange traded funds that move up when the indices move down) look very attractive to buyers here. Sometimes it's easier to see the direction a stock intends to go by flipping the chart over. Looking at the DXD and QID (ultrashorts for the Dow and the NASDAQ 100), it is plain to see that these averages are not good buys at this point and as such, their underlying indices are not good sells.
The bottom line: After last week's run, indices are probably due for some type of pullback or consolidation. We would certainly not buy at these levels. Selling short at these levels does not seem offer a great deal of potential either though. Dips from here are probably buying opportunities.
If we had to make a prediction, we would say that either indices are going to power higher above resistance here, and then pull back and regroup for a buying opportunity. Or, they will suffer a minor pullback, which will then be a buying opportunity.
But let's wait and see.
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