How High Can a "Dead-Cat" Bounce?

The stock market managed to put in a small relief rally. The good news is that most traders believe this is merely a Dead-Cat bounce. Therefore, a contrarian would say it may have a little more room to run. The Volatility Index (VIX), although down did not show its usual sharp decline for an up day. This indicates that fear and skepticism still abounds. The breadth was decent at around 17:12 advancers over decliners on the NASDAQ and 19:12 on the NYSE. The Small Cap sector outperformed all of the major averages up +0.8% and the Semiconductors were up a respectable +0.6%. Unfortunately the volume was very light which further shows lack of convictions.

Despite the fact that this Dead-Cat bounce may go further than traders believe; make no mistake about the fact that more retests of yesterdays lows are likely in the near future. Nimble traders may choose to short into further strength that is likely to surprise traders and materialize on Monday. However, due to the fact that the stock market is in the process of setting up what could be a significant bottom; aggressive short sellers need to take quick profits. Overall, our significant fundamental Bullish views will keep us from being too cute by shorting aggressively around these levels. Should we decide to entertain any short-selling, we will take profits quicker than Paris Hilton can pick up her skirt.

On the other hand the likelihood of a "V" bottom is not very high. Bottoms usually require multiple retests with heightened levels of fear thrown into the mix. Most young Bovines have learned to recognize a classic "W" shaped bottom. Accordingly, those bottoms rarely pan out. Shakeouts and inverted "W's" as well as Triple Bottoms are more likely due to the fact that there are so many recently made "experts" gaming the market nowadays. The old rule book has become as useless as Paris Hilton's chastity belt…(okay, enough picking on "Poor" Paris).

If You Held a Taser to Our Head:
We are maintaining a Bullish net long position of 65%. We intend on using possible "unexpected strength" on Monday to book some recent profits. However, we do not intend on bringing our exposure below 40% net long unless the internals show severe deterioration.

Have a Good Weekend. See You on Monday.

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