Atone For Your Shorts: Postmarket Update 9/28/09

I woke up to watch the market open this morning, and after spending the day throwing stones in the ocean and sitting through synagogue, I watched the close.  I’m not a religious Jew, but at least once a year on Yom Kippur I try and sit through synagogue, not do work, and think about whatever you’re supposed to think about on this, the day of atonement.

When I was done feeling guilty for not feeling guilty about sneaking a few peeks at the market, I had a chance to sit down and go through the day’s events.  Let’s start with a 10 minute chart of the $SPY.

We recaptured the declining 5 day moving average this morning as short sellers from Friday’s chop fest took another one on the chin.  A test of the 5 day MA this afternoon held with a strong close.  I still believe we are going to see another week or two of consolidation and chop, but damn, you can’t stay short in this market for longer than a few hours without having your nuts squeezed like they were in a vice.  So here’s my advice, take tonight to atone for your short selling ways, and quit it for now.  The time will come when this market gives obvious signs that the liquidity which produced this rally has run out.  High yield credit will roll over, crude will head for 40$, and market breadth will dissipate.

The move by $IYR and $XLF into the close is something to be aware of.  This looked like short covering as traders who had initiated positions towards the end of last week threw in the towel yet again as they couldn’t break the market this afternoon.  Don’t discount the value of this information, it is important to see where traders are placing their short bets, even if they are this ephemeral.

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