At midweek stocks are showing strong momentum and challenging last month's highs near 1039 on the SPX. I think we will break these highs soon and continue to squeeze shorts in this market. Traders (myself included) got a bit too bearish the last few times we sold off. We have seen dips being bought every time the funds get a chance. Remember that funds are going into end of 3rd quarter soon and they are under-allocated which is one reason why I believe we have the potential to see one big thrust up into the end of the month that could get us to 1100 on the SPX quickly.
After the breakout in the Euro this week and continued strength in the commodities I adjusted my bias up and think the shallow correction we saw last week will result in continued buying into end of Sept. Too many are expecting "the selloff" to 950 and I just do not want to be on the same side of the crowd. Ever.
I think we run into trouble into October perhaps as the last few bears get on board the rally if we break to new highs here. Then and only then, will we see a risk of a more steep correction going into the 4th quarter. We will cross that bridge when we get there however.
It is clear that the Fed is committed to "easy money" and will keep supporting US asset prices (stocks) as best they can. After all, the goal is to show Americans that the recovery is underway and "good times" are ahead and the best way to do that is to have equities rise and the Average Joe to see gains in his portfolio. Even if that means the intrinsic value of those assets hasnt quite changed in real terms.
Bond auctions have seen good demand and its a light data week in the US overall so we should continue to see a grind up in buying momo. GS closing above 170 was very positive and the transports look to be breaking out as well. The Nasdaq and energy also look strong and if the market does breakout these sectors should lead. Trade nimble out there.