Delayed Reaction

 | Jul 02, 2012 | 1:16 PM EDT
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The market is doing a fine job of shaking off the weaker-than-expected ISM number, but we've had a tendency toward delayed reactions to news lately. For example, the June 20 announcement from the Federal Open-Market Committee was met with little initial reaction, but then we were hit hard the next day when the market embraced the fact that there was no QE3 announcement. We also did a very poor job of anticipating the E.U. Summit but then gapped up sharply when news came out.

I think this ISM number will eventually matter, but for now traders are staying focused on technical conditions, which are fairly good. The strength on Friday created some upside momentum, and the hot money is still trying to build on it. There is some impressive follow-through and no shortage of very extended stocks such as Pharmacyclics (PCYC) and Horizon Pharma (HZNP).

I'm inclined to put on an index short, but I want to see the buyers back off a bit first. It is too easy to be squeezed in the thinning trading environment. However, if we test the intraday lows again, I suspect that a number of folks will decide it's time to lock in gains and leave for the holiday. There has to be some weakness first to drive that profit-taking, and that is what I'm looking for in order to put on some index shorts.

It is very tricky trading environment, because it is so easy for the short-term trading action to trump any of the fundamental news. It is obvious we have a slew of negatives out there, but as the old saying goes, they don't matter until they matter.

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