Just Follow China ..as the sun moves from East to West

The SPX index closed right on its 200 day ma yesterday, and on the high of the day, implying the continuation of the positive momentum, following the Dow and COMP, both of which has already cleared this hurdle. As I said before, there is room to run to 1140-1150,which to me would be a major inflection point to sell. But, after a brief rally this morning, the market seems to be running out of steam

The techincals still rule here, as earnings have been coming in mostly better than expected, but have received little focus and only a temporary reward. The beats are nice, but not getting much play for two reasons: 1)The Q2 earnings were pretty much front-end loaded, with April being a peak for many economic indicators, which means April may have contributed disproportionately to Q2 results and the business may have declined since 2)the overall lack of faith that strong earnings wold be sustainable in light of a increased risk of a double dip.

Over the past few months we have seen the US market trade off of a variety of factors (either inversely or in correlation with) crude, Euro, gold, BP, Europe, etc. During the last few weeks the markets seemed to have been especially coupled with China. China was up for the past five or six trading sessions and finally closed lower overnight. The Shanghai index is very overbought and a normal correction of a few days and a few percentage points would be reasonable. The bottoming of the Chinese markets have corresponded with the bottoming of the sentiment towards risk, double dip, and China bubble, so this tandem recovery in both markets is not very surprising. If you are worried about the risk on/risk off trade whipping the markets, just watch China for any clues.

Although there is still a possibility of this market running unabated to 1140/50, I made a few moves this morning to get even more defensive.

My trades so far this morning:

Sold TNA,GES,and WMT.
Short WLT, ACI, and AMAG.

I am taking a bit of a drubbing in DNDN, MOS, GDX and FCX, but except for GDX, I
am fairly well hedged with options, softening these blow.

If the market deteriorates more over the next two, three hours, I will likely buy SMN and TZA.