Pondering a Failing Rally

After it became apparent that Greece would not immediate come apart, stock markets sprinted higher over the past week to the tune of about 5%.

Commensurately, bonds have sold off, suggesting that much of the recent action has been courtesy of asset allocators rotating out of bonds and into stocks.

Is this move durable? Certainly possible. But my sense is that we could be witnessing a 'failing rally' here. Short covering, relief that the EU is still together (for at least a few more days), and a little 'Hawthorne effect' as QE2 comes to an end.

Nothing substantial has occured to lift the macro concerns. In fact, the forces behind those macro concerns continue to intensify. Moreover, sentiment, which was getting a tad too bearish in the near term, has dramatically shifted toward the giddy end of the spectrum in just a few days.

Risk management seems to have joined the crowd headed to the Hamptons on holiday.

As such, I want to use prices to my advantage on any continuation of this rally. This means letting go of more long exposure and looking for nice entries for additional short exposure.

position in SPX