Still Conflicted in the Short-term

08/27/08 10:20 AM EST

Good Wednesday morning...We begin the day with some mild upside in the major indices and most of the broader sectors.  While Oil has been bouncing back the past couple of days, stocks have been able to hold which is a change from their recent correlation.  Foreign markets were mixed to slightly negative, bouncing back from their lows after the morning's Durable Good report.  We have some important indicators being released tomorrow and Friday, and like this morning they should have a marked influence on the pre-market activity.

There's not much of anything new to go over this morning.  Yesterday we discussed a couple of conflicting data points, both of which had been consistent in the past.  On the negative side, a large sell-off on exceptionally low volume like we saw on Monday has had a strong tendency to lead to lower prices when it has occurred in the past 40+ years.  On the positive side, our short-term guides had reached oversold levels, and when the market sells off hard heading into an exchange holiday, it has tended to rally in the days immediately before the holiday.

On a more intermediate-term basis, since late last week I've been reiterating my reasoning for backing off of an exclusively bullish mindset (the negatives including a spike in positions in VIX futures, potential trouble for the US Dollar which has had a high correlation to the S&P, broken uptrend lines in the S&P and DJIA, an inability to rally well from short-term oversold conditions, and a market that has already met its typical bear market rally objectives from the panic readings on July 15th).

Because of that, given the conflicting signals in the short-term studies we went over, I saw no edge in initiating any new trading positions here on either the long or short side.  Volume should continue to get thinner as we approach the historically positive pre-holiday session on Friday, so it's not going to take much to whip us in both directions.  Barring a solid bias, which I don't see here, I'm staying in cash for trading accounts.