In The Face Of Death: Risk On IWM, XLU

• Posted by DynamicHedge
• on September 7th, 2011

The market looked at the bearish action out of Europe ($DAX torched) and decided to douse the flames with money.  A lot of risk on money came into the market on Tuesday and forced the $SPX back above the 1150 level.  Is this late-to-the-game-money from the sidelines trying to fight the previous war?  Is this long only managers defending their positions?  Or is this serious support?  Difficult to say at this point.  If the market is going to turn higher, it needs to do it here.  Otherwise we have a ways to go down.

Constructive action for the bulls is the money pouring into smallcaps as seen in the $IWM vs $DIA spread.   Also, the fact that $XLU vs $SPY safety trade did not break highs as Europe made new lows is very positive for a potential bottom.

Volatility should pick up here.  Overall, I feel that the market is on the other side of the mountain.  It’s a matter of time before we auction lower.  That doesn’t mean that the bulls won’t put up a fight in the mean time.

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