In spite of all the fashionable buying today, our outlook over the next week or so isn’t particularly bullish, and here are some reasons why:

• Historically, it is really uncommon for the market to move up 2% the morning before a Fed announcement…
• …and in general, these big Fed rallies tend to end either in boredom or in tears over the following several trading days.  Over the past decade, these kinds of flashy rallies have been sustained less than 33% of the time one week later, and even then by only a small margin.
• Volume on the indexes was okay today, but just okay.  Price action this dramatic is usually coupled with volume that is at least higher than average, and we’re obviously not seeing that.
• The indexes have seen plenty of overhead resistance here, around 1285-1290 for example on SPX.
• Short-term relative strength indicators have the major indexes as short-term overbought, along with overbought readings above 90 in the Dow (DIA), Financials (XLF), Healthcare (XLV), Retail (RTH), Consumer Discretionary (XLY), and Transports (IYT).  Meanwhile, gold and commodities are most definitely short-term oversold.

We wouldn’t be surprised to see a move higher in the morning, and then a snapback and some choppiness for the rest of the day.

Last 5 posts by Condor Options

• Midweek Sméagol Reading - August 20th, 2008
• More on The Correlation Game - August 18th, 2008
• August Monthly Review - August 17th, 2008
• They Have the Passports to Prove It - August 13th, 2008
• Sleepy Nasdaq - August 12th, 2008