Despite a 3% rise in the stock market Rydex traders stayed firmly bearish. Usually the downside is contained until they relent and move to a more neutral posture. Last month's snapback rally lasted right through options expiration and it looks like that might occur again this month.
Looking at the intermediate term picture, there is fuel available for a rally. Hedge funds have derisked and if the market starts rising they could be forced back into the market. If we start seeing M&A and buyback activity pick up in the next few weeks than I believe that could force the hands of hedge funds. However, if that does not occur a slowing economy could mean a trading range or even a puncturing of recent lows.
For now, I am holding on to my longs with an eye on the door. I will be looking at my short term signals as well as looking to see if the bullish scenario I outlined above starts to play out.