Will The Rally Continue?

Today we saw a sharp rally in all indices, while shorts scrambled to cover...boosting the rally further into the late afternoon. Of course, sharp rallies are not unusual during beark markets. But considering the overwhelmingly bearish sentiment within the mainstream, we take this as a contrarian indicator of a continued rally in equities. Therefore we have closed our shorts and will remain on the sidelines until further confirmation. Meanwhile, we expect oil producers to come out with strong earnings in the coming weeks due to the price of crude which hovered above $70 throughout this year. As for tomorrow's data, BP will be reporting its earnings and we are long BP calls. Furthermore, data on consumer confidence and existing housing sales will be released tomorrow. We expect both data to reflect the lagging drag of the Fed rate hikes, and we also expect the data to show further slowdown in the housing market. PHM has been forming a descending triangle, which is a continuation pattern of a downtrend. We took today's massive rally as an opportunity to build a short position. The falling volume indicates the near completion of the pattern and we expect PHM to break below $26 accompanied by heavy volume.

Disclosure: Long MSFT (Stop revised to $23.7), Long BP Calls, Long PHM Puts