Light Volume Suggests Positioning Cautiously

Welcome back to the holiday-shortened-extremely-light-volume-week.  Equities quietly moved higher on Monday and Tuesday and this morning’s futures are fluctuating rapidly between positive and negative territory.  ADP Employment data and Initial Jobless Claims were both reported stronger than expected.  Concern still exists over tomorrow’s Employment Situation; the last three reports have significantly contributed to a sell-off in equities.

Quantitative levels have moved up in a strong way:  Overbought at 1377 and Oversold at 1331.  The Oversold level moving up into the 1330 – 1335 range bodes well for equities holding any pullbacks.  Forget about the “bad news is good” and “good news is bad” mantras.  The thought being that bad economic data will bring another round of quantitative easing while good news will not.  The bottom line is QE3 is only coming in the most dire scenario, which certainly isn’t when the SPX is +9.26% YTD.  Whether or not tomorrow’s report comes in better than expected, equities are a bit extended here, but with light volume, a sharp move in either direction can come quickly.  The risk/return ratio is high here and better opportunities will present themselves–even if that is at a higher price in the future.

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