I continue to build short positions today, slowly, as this market continues to see an underlying bid and drift to the upside.  I believe the drift will end soon as the dollar is poised to rally.  Europe has rallied hard the past few weeks as the bank stress test news has gotten under way.  I believe we are at a major inflection point right now regarding Europe.  Will they be successful in scaring the shorts out by telling everyone the banks are fine (they are not), or will the shorts reload up here at major resistance levels and smack Europe again next week?

The materials sector here has bounced hard the past few days, I believe because of the strength in Europe.  Crude has also seen a bid as well.  If Europe rolls over next week, which I believe it will, you want to be short steel names.  I took a short position today in NUE.  I also took a short position in STD with a stop at yesterday’s high.

If, if if if, we bust through these important levels, especially in the European markets, a major squeeze could be on similar to what happened in our banking sector in early 2009.  In that event, I will stop out of these shorts quickly.  The name of the game right now is to be small and agile.  Trading on the short side is completely different than the long side.

I’ve hedged myself somewhat with a long position in DPS and PWER.  Check the position sheet for a complete view.

Watch the dollar, that will be the tell.