I confess to being surprised by the extent of the current rally, even after many times warning that bear-market rallies tend to be sudden, violent affairs.
Nevertheless, the facts point to the dramatic advance of the past 10 days (the best seven-day rally since 1939) as still nothing more than a rebound following a sell-off that took prices to a level that had to be attacked by bargain hunters and patient investors alike.
Now, however, the easy part is behind them.
As the S&P 500 moves in on the 800 to 820 area, it is bound to not only find it harder to advance, but the chances of a dramatic reversal are very high.
Just as the internal indicators at SPX 666 were grossly oversold, now they are grossly overbought. And with an increase in inflation staring us in the eye, the specter of "stagflation" is already being discussed.
It is clearly too late to jump on the long side of the market.
But it may not be too early to buy into the contra-exchange-traded funds (ETFs) and precious metals, for both trading and for hedging portfolios against the inevitable and impending sell-off. However, despite all of the hoopla, the market still belongs to the bears.
One way to play precious metals is with my Trade of the Day, Barrick Gold Corp. (NYSE: ABX). With inflation as a real possibility, ABX has responded with a buy signal.
Sam Collins is a contributor to OptionsZone.com.
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