Major downside will be difficult when bonds are this strong

Remember a couple weeks back I said keep an eye on bonds. Corrections in the market tend to happen after some sort of a bond sell-off. For example, take a look for example what happened in June.

When the market appeared to be forming a top in late August I noted how market action was similar to that of mid June with one major exception.....bonds. Bonds didn't sell-off very much and as I result I expected any correction to be less compared to the June correction. I gave two downside targets SPX 1000-1010 and SPX 965-975. I felt ultimately, the latter target would get hit but it looks like I will definately be wrong about that. But, I adjusted as the days went on....and its paramount that you adjust when the evidence suggests so even if you are a bit late....better late than never.

After yestereday's rally, the SPX and NASDAQ all made new marginal YTD highs, and the advance/decline line of these indicies also made new highs. Anyone still calling this a bear market rally is in denial if you ask me. On a ST basis, we could still see grinding higher prices but we are very close to the point where the market will likely catch it's breath and go sideways to slightly down for a few days....I'm thinking today will be kinda boring.

It's tempting to go short when you see the market this overbought but I've learned that untill market action shows bearish signs confirming any immanent reversal of overbought conditions more often than not you are better off standing aside because otherwise you would just be guessing and hoping for the turn and doing that in the face of a new YTD high is like standing in front of an oncomming Mach truck like I illustrated before.

I decided yesterday to dump my puts on UUP. I might end up regretting this but because I will be distracted for the next several days and the fact these puts are quite illiquid with poor bid ask spreads I decided to get out. I might end up replacing this position with calls on gold stocks such as NEM....I'm kind of being pulled in a hundred directions right now with my upcomming wedding on Sunday and visiting inlaws from Korea....it's a zoo in here...