Up until couple of days ago,  most were engrossed in the sentiment that this market should go much higher.   After last few days action, signs are beginning to surface that this rally will take longer to materialize.  This is a good thing, right?    Well, if you happened to load up lately and were looking for SPX 1100 in quick fashion, you'd more than likely be disappointed.     The problem is, there were many people looking for this type of scenario since last correction.     Ideally, this market would sky rocket to SPX 1100 by this week and we can all sell and wait for the inevitable pullback to start the cycle again.     This type of sentiment is displayed from the recent sell off (prior to this week) where dips were immediately bought and new highs followed.    In reality, this just can’t go on forever.    We were also guilty of buy the quick dip and so you can say that we were all part of the problem.   Being part of the problem is also the fact we’ve saying profit taking will come on any move higher since last week, thus setting all of us to do same.

A problem, you ask?   The problem is that we aren't allowing this market to properly digest its move.    First of all, this is a bull move, even if we pull back 10% from the high.    As long as the trend is going higher over a long period of time, we'd consider this a bull run.    Lately, positive econ. data and positive corporate news headlines aren't giving this market a jolt to the upside.   This makes a bad eco' data point that much more riskier for the market ahead.    Even with all the positive news, we aren't seeing more money flowing into this market and chasing the beta stuff higher (other than 3-4 financials linked stock taking up 1/5 of the volume).   It looks as if when we got over SPX 1000,  people just become cautious for a change.    We know there's tons of sideline money out there still.    The fact that investors have become "smarter" for not chasing this market into a very over valued state, is a good thing.    If this is the case, we have to respect it and move our game plan accordingly.

What now?    Equity market was sold pretty hard on Tuesday based on the massive volume (SPY).   Normally, this indicate that the selling is not done and it may attract more selling in the days if not weeks ahead.   This is what we are expecting.    The first line of major support is around SPX 980 area which is basically one day's worth of selling away.    The next big support is around SPX 950 area and we are very confident that it'd be the "worst case scenario" pullback area.   Why?    Economic trends don't suddenly turn 180 degrees and corporate guidance doesn't change over a week or two.    At this point, we are hard to see any major negative catalyst heading our way before the next round of earning start.    You can say anything you want about  September being the "worst trading month" but it will not trade in a disconnected way to the current environment.    Yes, we expect it to be choppy this month, but our theory for SPX support should be logical.

What to do?    Now that we are fully aware that a pullback(meaningful one) is the best thing for this market, we ought to prepare ourselves for it.    Keep in mind, a pullback does not necessarily mean that we hit 980 or 940 next day or two and get it over with.   It can last days, if not weeks and it'll have mini rebounds in between before a final turn merges and a steady upturn follows.    So, between now and the our major support area, we'd be doing less buying and more trading(flipping).   We'd hold some core position and will only add if some individual play become very attractively priced.    As the market draws near the major support area, we'd get aggressive on buying and we'd most likely focus on the ETFs such as SSO  BGU as oppose to individual plays.

As far as sector moves, we'd be very aggressive in chasing any on a short term basis (China linked stocks is one we're watching closer today, followed by commods').   Gold's move today, on the other hand is not something we'd want to get into just yet.   This safety theme here can be become a very crowded volatile trade as it stems from a global market perspective fears of a market correction coming in September.    Bottom line,  September has started to look like a turbulent month.    However, as long as we are clear about where we are and where this market may go, we can come up a sound trading strategy to move us through the month smoothly.

A few takeaways from today is a surprising failure for the Shorts to press the market lower.  If you have a big day like Tuesday,  they should be stepping up to the plate the next day.  It should be a kick them when their down, mentality!.  On the other hand, Bulls still not providing an underlying bid to bounce this market.  Why?.   Simply, as we said yesterday, the technical damage done is a little risky right away to get into.   Today was simply a draw.   We haven't had 4 straight down days since May,  it may lead to a technical bounce before the weekend.