Was it a Dead Cat Bounce ?

A number of commentators have pronounced last week’s rally in the stock market as a dead cat bounce.  It could have been,  but it would appear to us to have had more energy than something dead although we would point out that short covering in the financials was the beggest factor starting the move.  It is true from a technical standpoint that the market did not go down and make a classic bottom at 1100 on the S&P , so that will be for a later time. 

For now the market has backed off into what should be a support area at 1230 on the S&P and could easily this summer trade up to the 1320 area.  The fundametals that could be supportive are that earnings reports are peaking this week and the market has sold off to adjust for the employment report on Friday. This is not to mention that the Treasury’s housing support package is going to see implementation start soon and the oil and gold markets have topped out and are headed lower.  Another technical support factor is that the S&P futures are starting to trade consistently at a discount to cash, indicating that the market players are bearish, a contrarian indicator.

All of this is short-term trader talk and don’t do any buying for the moment above 1240 basis the S&P, the closer to 1230 the better. Investors should continue to treat the market as a bear market where concentration should be on selling the rallys and the next one will be to S&P 1320.  Our hedge fund accounts cut short positions in half yesterday and the regular investor fund is 11 percent long. I would also add that after our short covering yesterday our net short position in the hedge funds is all in oil, gold, and commodiites.Ag commodities are now at a level where we may take profits and watch, but gold and oil are staying.

8:21 AM CDT update