Market Stages An Impressive Rally; Catches Most Traders Off Balance

If you didn't watch the market today, you are likely tuning in at the end of the day and asking yourself, "What happened? Did we have some huge buyouts? Did oil plunge? Did we catch Bin Laden?". But the answer is no, to all of the above. The news wasn't even that exciting.

What counts is what I have been harping on, that sentiment in the market is terrible, short interest has surged lately, and investors remain underinvested and poorly positioned for an ongoing rally. The market loves to catch the majority leaning the wrong way, and that is exactly what happened today. How else can you explain a nearly +300-point day in the Dow?

The strength in today's market was palpable. The semis led the way, gaining +2.90% on the day. Banks and brokers were also strong, rallying +2.53% and +2.30%, respectively. I think every sector I follow was higher today.

I really thought that the SPX was due for a bit more of a correction. But as one of my former colleagues used to say, follow through is key. Although the SPX broke its 50-day on Tuesday, it failed to follow through on the downside, and today's surge makes for new highs on what was looking like a triple top formation.

While that may sound like a lot of industry jargon, the takeaway is that today's action is significant, and should be respected. I plan on using any weakness to put more cash to work, as the risk in this market remains being underinvested.