The impressive rally the market laid out yesterday definitely had a 'bear market' feel.  Shorts were squeezed in the financial sector to the tune of 12% overall on the day with many bank stocks faring better than that.  Many major airline stocks were up anywahere from 20 - 41% in one day.  Recall that I have been warning the shorts and making a case for a rally to develop.  With earnings 'not as bad' as feared (Wells Fargo, Intel, etc.) and  sentiment VERY negative, the bulls were ready to run.  Throw in another selloff in crude along with the SEC meddling in short sale rules once again (only in selected sectors, mind you) and nervous shorts took money off the table.   It is interesting that everyone wants to blame speculators and curb their actions when markets don't do what people want them to do.  In this morning's Wall Street Journal, there is a column addressing this issue.  If oil is going to the moon and equities are heading south, it is those nasty speculators driving oil up and shorting stocks into oblivion.  What about the speculators that participated yesterday by jumping in on the short side in oil to push it even lower, and on the long side to push equities higher?  Are their actions acceptable because it is a desired outcome?  I truly hope the SEC and congress do not meddle too much as the business of intervention rarely has the desired effect. 

As I said in the 'shorts be careful' piece last week, this rally could carry the Nasdaq to the 2600 level.  A rally to 2600 would complete a symmetrical A -B - C pattern, but things don't always unfold in a neat, orderly fashion.   Another possibility for the Nasdaq is a rally to the 2359 - 2404 area to close a gap from June 26 at 2376.29.  Time cycles are now lining up in the Aug 15 - Sept 12 range which of course will be refined as this relief rally unfolds.  It will be very interesting to see how traders react if crude oil gets back up off the deck one more time.  

The sector model got hit yesterday as the July picks are in commodities and inverse index ETFs.  The system does have a 5% circuit breaker in that if the positions as a whole decline by 5% or more, the model moves to cash for the remainder of the month and makes new selections to start the next month.  This eliminates the model trying to catch every twist and turn in the market which is very difficult to do.  Since it is a totally automated, emotionless system, new selections are made without second guessing or over-analyzing the market backdrop. 

Also - I realize that this blog is fairly new and I have not talked about all of the tools I use, but my overall market system is on a 'Sell' and has been since the week of June 20.  Should that change, I will publish it here.  Until that system switches to a 'Buy' signal, do not get carried away on the long side no matter how giddy pundits, traders, and reporters sound.  Never follow the media, always get your signals from the market itself.