About that summer rally

I'll be out of town this weekend and won't be posting my planned market update on Friday. There are some ominous "bear trap" signs developing, in regards to this upcoming rally. On marketedge.com (subscription required) the historical models show that we should be in a rally condition. With the market oversold, they would appear to be right. In Jim Cramer's book "Real Money", the Fed cycle model shows the place to look right now are paper, chemicals, and to a lesser extent "smokestack" stocks. Back on marketedge, almost all of these stocks are short sale candidates, with the warning "wait for pullback". In other words, let the rally get going before moving in for the kill. I have a healthy respect for short sellers, having been burned by them in the past.

After the rally starts, we should see a dip in gold prices. An alternative strategy might be to buy gold on the dip. With the credit crunch now projected through 2009 and beyond and the Fed stuck in neutral, this may be a good long term play as well. Of course, sitting it out is always an option. In any case, there's nothing to do but watch this week and await further developments.