as traders wade very slowly back towards buying after a bout of 12 down days out of 13. This is quite normal to be sure; and we view this as nothing more than the requisite “countertrend rally” to alleviate a short-term oversold condition. Yesterday, traders liked hearing about “eurobonds” again; just as they have liked it every time it has been rumored – but subsequently shot down by Europe’s German taskmasters. Those proposing such bonds want to use Germany’s historical frugality to pay for the southern periphery’s spendthrift ways. It shall not happen given German resistance. It is just that simple.
However, the French proposal coupled with the short-term oversold condition created a strong short-covering rally, which is likely to persist for another several days. We could very well see the S&P 500 test overhead resistance at the 65-dema/18-dma convergence at 1359 before selling pressure once again pushes prices lower to the 200-dma crossing at 1275…and possibly even lower as most if not all world stock markets are in bear markets below their weekly and monthly moving averages. In other words, it’s a “world bear market,” and the US is the horse that is rearing up in defiance as it doesn’t want to go down without a fight.
Trading Strategy: Yesterday, our TWM position was “hit” with the rise in the market, although we are still profitable. Today, we shall take that TWM profit and allow the market to move higher as it needs to – understanding that we shall look upon the S&P 1340-1350 zone as preferable to put back on the short position. We’ll be patient until then given the overwhelming bearish evidence.