Great Trades

With the S&P 500 down over 2% to near 805 support and financials down about 5.5% at today's close, our trading model is taking profits on the shorts added at yesterday's close. After yesterday's huge rally and today's pullback, the S&P 500 is only 3 points (less than .5%) above Thursday's high, and financials are over 7.5% lower than Thursday's high.

Despite overbought short-term conditions, this market has powered higher from every pullback in this rally so far. Given our positive intermediate view of the market, along with clear bouts of frenzied short covering after recent pullbacks, we're being conservative on our shorts, with a stop at today's high for remaining shorts. With a large number of shorts looking to cover, and 800-805 previous resistance now providing support, we could see another surge higher even with short-term technicals extended.

Looking back over the last couple of weeks, our trading model got heavily long right at/near the bottom for this rally in the upper 600's on the S&P 500 (after being heavily short from the 780 area, and the upper 800's before that). However, it reversed to short based on short-term overbought conditions too soon, as this rally has been much more powerful than other recent rallies. It also covered on the pullbacks only partially, when in retrospect it should have reversed to long given our positive intermediate-term outlook.

We're fine-tuning our trading model to be much more careful reversing during a trend, and much quicker to close out counter-trend moves going against our outlook. Also, when we see upside coming, such as during yesterday's consolidation just under 800, our model will reverse to long rather than partially close out positions, as it did ahead of the Fed meeting last week.

Here's the updated weekly S&P 500 chart, again showing one reason we have a positive intermediate-term outlook: