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Think left and think right and think low and think high. Oh, the thinks you can think up if only you try!
Dr. Seuss

The COT index this week is +10.8%. This would [as it is improving] suggest strength in the market.

All week the blogosphere has been debating the long/short question. I myself was willing to consider the bear case at/around these current levels.

Technicals

The 15day is in a downtrend with resistance at circa $181.20. The 10day is also in a downtrend, although the channel is starting to flatten out, which suggests that the market may have [for this pullback] already bottomed. Resistance is at $181.40 which is slightly higher than the 15day. The 5day is uptrending. It has no significant levels currently.

Today, we are trading in a very tight range. Again we have a Fed release later this week which will be Yellen’s first as Fed Chair. Again most [think] that she will continue the QE reduction cutting another $10 billion from the monthly buy. The reason [and quite rightly] is that QE has done little to nothing for the real economy as far as employment. The money has simply been redirected into various financial markets, which is true.

Therefore [the bear] argument essentially states that without the artificial stimulus, the markets trade lower [at worst] or go nowhere [the correction through time argument] but that the bull is over for the moment at least.

Add into that earnings, which on lower expectations, are still managing to disappoint, and the market lacks any catalyst to push it higher.

Logically, the bear case reasons correctly. It is just that we all have been [due largely to QE] conditioned to buy the dips. Buying those dips has been rewarded. Today, the trade [although it will be a difficult trade] is short. However, as it would signal the [likely] end of the current bull, it will not be an easy or comfortable trade as the general economy is in ultra low growth mode. For these reasons only the most aggressive should look short. The rest of us will more sensibly stand aside or remain market neutral.

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