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Q2: Good Market Start But We Need Less Selling In Rallies

The second quarter has begun, a big rally on big volume held to the close.

Let's review where we are, and where we might be going. At the close of the first quarter, the typical trader position was long commodities and bonds, short stocks. This trade has been on for so long that traders are beginning to wonder, when does "The Great Unwind" begin?

Today's rally:

--Started as short covering in financials in Europe
--Continued with a rally in the dollar
--Saw bonds & commodities weaken
--Saw new money enter for the start of the quarter

Is this it? It looks like the potential start of "The Great Unwind," but there have been so many dashed hopes that there is a great deal of skepticism yet.

What we need now: continuing unwinding. We need to see:

--Dollar rally modestly and stabilize
--Commodities drop more.
--More air out of bonds
--S&P 500 should move above its most recent high of 1381 at the end of February
--S&P Financials should move decisively above the recent highs of 359 (trading today around 356), which will break the pattern of lower lows and lower highs that began in October.
--Volume picks up on up days, drops on down days
--Selling into rallies stops

Those who desperately want to believe that "The Great Unwind" is about to begin point to gold: 14 percent off its highs. Bottom line: this is a good start, but we need to stop selling into rallies. Nothing else will convince.


Questions? Comments? tradertalk@cnbc.com

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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