As I discussed in my opening post, the setup for a move higher is almost perfect -- but when things are too perfect, they can be quite tricky. That seems to be the case with this market. The breakout buyers are champing at the bit, but there are plenty of algorithms looking to fade them. We are seeing a battle between the trend-following bulls and the "enough already" bears, who keep trying to call a top.
The failure of the market to jump higher, following the Fed and earnings from Apple (AAPL) and Facebook (FB) , is giving us a negative tone. The odd thing about this market is that it seems to rally better on bad news than good. Apparently we need more events like Brexit to really excite the bulls. AAPL and FB are both Action Alerts PLUS holdings.
This sort of environment tends to produce dip buyers that aren't comfortable with the chase, but want to put some money to work quickly on weakness. The support tends to be quite stubborn, but if we take out intraday lows, that will trigger sell stops and can produce a quick run for the exits.
One of the psychological issues at work is that this tight trading range is at a historic level, and that makes folks more anticipatory. We all know the market is setting up for a move, and the longer the trading range continues, the more anxious we are to anticipate it.
I still have a bullish bias, but am hedging a little with a Direxion Daily Small Cap Bear 3X ETF (TZA) position. Small-caps have outperformed, and when we do correct, I expect they will be the fastest. Some of my Stocks of the Week, such as Splunk (SPLK) , Tucows (TCX) and Yirendai (YRD) , are doing well. And I'm interested in buying some precious metals plays, such as Silver Wheaton (SLW) , AngloGold Ashanti (AU) and DRDGold (DRD) , on weakness.
So far the indices are holding where they need to, and that can lead to a squeeze the longer it holds.