Today’s market brings back thoughts of 2 past market conditions.
1. Jan 2013. On the 1st trading day of this year stocks gapped higher and held their gains. Many stocks were at the top of their charts but no longer overbought thanks to the pull back in weeks prior. While the 1st trading day of the year ended with solid gains, many stocks consolidated back towards their 7 day moving averages in the subsequent days offering fantastic buy opportunities.
2. July 2007: the SPX set a new intraday high in July and managed to stay there for a few days before the SPX fell over 100 points. The pullback was only a precursor to a new high to come in October but it jolted the markets and took the luster off the commodity boom that had led the market to new highs.
Admittedly, today’s market appears to be more like January of this year than July of 07 due to the strength in financials and transports. The strength of the dollar and relatively small pullback in bonds leaves for suspicion of the rally today and is why I have a small SDS position in play. The nature of the consolidation or potential pullback in the market in the coming days will speak volumes as to the future direction of the market but for now, the bulls are holding all the cards.