Dare I Say It? A Higher High?

I haven't seen one of these in nearly 6 months so it looks a rare bird... but this *could* be a new high as we breach/test S&P 500 level 1360. It is still too early to tell but as a defensive (or offensive depending on how you look at it) I am tossing in a lot of my short exposure and taking my short basket down materially (sub 10% exposure). This could simply be a head fake but if we close near this level and futures are screaming up tomorrow you will get the calls for a new bull market forming blah blah.

We still need some confirmation but it could go either way from here - new bull or continued bear so I want more cash in case its new bull. Even if the bull stands on faulty ground. Somehow it all feels like an April Fools joke except my portfolios keeps going down on huge up days in the market so it's real ;)

If this is a failure, we'll know very soon. S&P 1350 is the line in the sand. It is very difficult to make any prognostication either way - but you have to respect the reaction to the news. If a $19 billion UBS writedown is treated with glee can you imagine how many points we will rally when Citigroup and Merrill Lynch do their writeoffs? As always, it is not the news but the reaction to the news that matters. As long as people believe this is truly the kitchen sink quarter (like they believed in October 2007, like they believed for a few days in late January 2008 before getting summarily dismantled) we can go up. The market looks forward - as long as it sees Kool Aid through the haze we can rally. I am getting sick of typing 'inflection point' since we seem to have one every 3rd day but this is yet another one. Until it is resolved, I'll be more in cash and less into shorts...

As I wrote in this week's review, I'll always trail the markets during reversal points since I assume the previous trend continues which is what works 95% of the time (and has been working the past 4-5 months, a series of lower highs). When the (rare) reversals do happen, then you have to reverse strategy and it will take some time to catch up... but the jury is still out at this point so I'll be trailing this week while the market makes up its mind. But there is a lot of cash on the sideline which has been waiting for someone else to "go first" so technical conditions could improve to the point many more will jump in.... we shall see.

If we do embark on a rally the areas of important are all the previous lower highs, 1385-1395, and then if that bursts should be clear sailing to 1420-1440.