Focus On Oil While the Market Makes Up Its Mind

As you can see from the risk table below, the risk of a major reversal is extremely high at current levels. Even so, it is best to wait for confirmation before betting on a downturn. The near term trend remains up, and while the bulls face probabilities that are strongly against them, it is unwise to fight the tape of the near term trend.

If and when it turns there should be plenty of opportunity to reestablish short positions.

Meanwhile, oil rocketed higher again out of a thrust pullback from last week. Volume was strong and no glaring divergences exist, which should give oil bulls pause here.

Outlook:

The outlook here can't be known until the market confirms one way or the other. Risk is high and we would think that the market is apt to roll over somewhere near here with prices facing major resistance and with traders bullish again, but anything can and often does happen in the market, so we recommend keeping your money sidelined until the risk:reward situation improves with a confirmation.

Rising prices on bad breadth and increasing bullish sentiment is not a recipe for sustainability.

Keep in mind, that while we are recommending a cash position on the broader market, that there remain opportunities on the long side in the oil sector, where the bull continues to stomp and snort.