While the relative size of the Dubai World default is small, I don't believe it should be dismissed. As Mohammed El Erian of Pimco said, after a 60% run Dubai World could be the catalyst for a correction. The proverbial straw that breaks the camels back. This is also a reminder that the credit cycle is not over, the economy is not healthy and that there are likely more defaults yet to come.
While I am taking the Dubai World default seriously, the shorter term picture is murky. The only time it has paid to bet against the market recenty is when sentiment has been extreme and the market has been maximum overbought. While sentiment is consistent with that seen at tops, the market is only two days away from being maximum oversold. In addition, we are approaching the end of the month and are in a seasonally strong part of the year.
With all these cross currents I would not be surprised if the market went higher or lower in the days ahead. As such, I am not taking a strong directional stance and sticking to my long quality versus short SPY trade.