Stocks Pare Back Some As Optimism Wanes

Stocks pared back some gains after Thursday's tremendous bullish outside day thrust higher. The dark cloud cover pattern that developed Friday, however, highlights an overbought condition that is being unwound with RSI reacting at extreme levels. Unfortunately, this could hint of a failed attempt on the 4200 region by E-mini futures (ES) bulls. That said, a higher low is likely to set-up for ES/NQ futures by mid-week as debt ceiling talks loom in the nation's capial. One concern that may play a role is rising interest rates. US 10-year futures rejected at the 100-day MA in the morning then the 200-day MA later before closing at a 2-month low. The US dollar, meanwhile, paired back recent gains as well, which propelled the euro, pound and gold each from oversold conditions. While market sentiment continues to gradually improve, Friday's price-action is a reminder that ES bears have not given up quite yet. In fact, according to the latest CFTC IMM report, S&P 500 future traders have accumulated the largest (net) short position on record!