Keep Your Powder Dry

Socialization of the mortgage guarantors caught short traders off balance today as the market gapped up big. The SPY gapped back inside the trading range that it broke down from last week putting into question the hypothesis that a fresh leg lower was the destiny of this fall’s trading.

Benefiting most from this government takeover were the homebuilders, REITs and other property holding companies. The tech sector continued to lag.

The market is not out of the woods yet, however. It still faces formidable overhead resistance. Unless and until the SPY can close back over $130.75 it will be a good idea to not invest too heavily on the long side.

Today was a one day event. It needs follow through and a close over important resistance levels before it can be trusted. There will be plenty of time to get long when and if that should occur. Until then, keep your powder dry and tighten up stops on short positions.