Top Line: The stock market took a little breather today after the run up we've seen over the past couple of days. This could be setting up for another run or for more breather. Only the market can tell us that. Maybe the traders were just celebrating Cinco De Mayo.
We want to concentrate on the near term direction of the market. Our favorite indicators are telling us some things this evening and we should be heeding at least the warning in the short run.
First, we have the volatility indexes which went down during today's breather. This is not the direction we wanted to see if we are bullish. Volatility should go Up when markets go down, not down, but we don't want to read too much into this one day blip...but there is more.
Second, the Treasury bonds have stabilized over the past couple of days which could proceed a bounce. With a bounce in Treasury bonds, that means that money is being sent over to that market and less is going to stocks so, at the very least, they suggest some near term caution in the stock market.
We could be setting up for a short term drop that could take a little wind out of the bulls sails so we want to be ready for buying opportunities that may pop up. And, for us, we want to be tuned in to the possible trading opportunities as well.
For long term assets, we don't recommend making any changes since this could just be a couple days or a few more of consolidation. If it gets to be more than that, then there may be some buying opportunities.
The futures are down this evening which could lead to a down opening. This could be all of the downside we get with a burst of power coming out of that. We just can't be sure this evening. The market does like to give buyers some confidence (just like all con artists) so they will come in and buy just before the sellers come back in. That is what seems to have happened in the past few days.
Just so you don't forget our stance, we are very bullish through the summer and into the fall. Any short term drop should be used to buy more stocks, be opportunistic. Any selling you may choose to do should be into strength and you should take steps to buy your positions back with any sell off that may occur after you sell.
It is just way easier to stay the course and let the market scare the bulls and scare the bears. When there are no more bears, we will be Sellers but there are plenty of skeptics out there right now and the market has a long ways to go Up.