Traders should be bullish for now, but bearish for later.

The stock market is set up to move higher in the short term. But the upside is limited and the downside is substantial. So, traders should be looking to sell stocks short into strength over the next few days.

The S&P 500 broke out to the upside of a consolidation pattern yesterday. That’s undeniably bullish. So, there’s probably more upside ahead for the short term.

But, there are a few warning signs for folks who can look out more than a few weeks.

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Here’s an updated chart of the S&P 500…

We were looking for a summertime rally as we headed into June. And we’ve certainly gotten that. The market is 6% higher so far this month. And there are probably more gains ahead for the short term.

The technical indicators at the bottom of the chart are either neutral or just barely overbought. So, there’s a little more room to press higher.

But, traders should be careful here. The S&P 500 is trading nearly 40 points above its 9-day exponential moving average (EMA). A spread of 30 points is often considered extreme. So, we’re a little bit stretched.

I’m not looking to chase stocks higher here. But, I’m also not looking to aggressively short the market. We don’t yet have the sort of extremely overbought conditions that lead to strong moves lower.

Instead, it probably makes sense at this point to just hang on to whatever long positions you bought in late May. Raise your stops to ensure you collect profits on the trades. And just ride the momentum higher.

The market is setting up for the greatest short-selling opportunity of the year. But, we don’t have the conditions in place just yet. Maybe we will over the next few weeks. But, for the next several days… the setup looks more bullish than bearish to me.

Best regards and good trading,

Jeff Clark

Reader Mailbag

Today, readers flood the mailbag with praise for Jeff’s “Happy Father’s Day” essay…

Thank you for another beautifully nostalgic image. Your writing is like looking at a Norman Rockwell print! Thank you very much!

– Susan

I loved the piece that you wrote today for Father’s Day. It’s great when you get away from the market for a little while and share the really important stuff with us. Brought a tear to my eye recalling my late Father as well.

– Tom

Your story was quite moving and touching the way you describe your Father while you were a kid. Obviously, he had taught you quite a few valuable lessons which shows from your motivating others who are not been in a successful position that we are in. Credit goes to him who had put a valuable lesson in your heart and mind. “Do not travel alone on the road to success, you would have more success when you carry along others with you!” Remarkable thought.

– Ali

Thank you, Jeff, for your reminiscence of your father. It brought back a touching memory of my father.

– John

Happy Father’s Day Jeff! Such a wonderful family you have, God Bless you!

– Carol

Your Dad sounds a lot like my Dad. Those times sure built character. Thanks for the story.

– David

Thank you for that beautiful tribute to your Dad, Jeff. It brought a lump to my throat. I miss my Dad terribly too, he died 42 years ago.

– Duncan

Nice tribute to your dad. My dad was very much like that. There for all the big stuff, and the little stuff, too.

– Art

Thank you, as always, for your thoughtful insights. We look forward to reading them every day. Keep them coming at [email protected].

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