The Lights Have Been Turned Out–So Should We Short? My Answer May Surprise You

Random Thoughts

The Ps sold off but did recover to close off of well off their worst levels. They didn’t quite make it back to the plus column though.

The Quack also had a nice recovery off of its worst levels. It did still lose 1/2%.

The Rusty (IWM) also recovered from its worst levels. It still lost ¾% nonetheless.

All of the major indices have “Bowtied” down from major highs (all-time for the Rusty,Dow, & Ps).

Not every Bowtie (or other transitional pattern) will turn into a major top but every major top will have a Bowtie (or other transitional pattern). So, as I preach, it pays to pay attention just in case the lights have been turned out.

It is too early to tell if this is the start of something bigger but it is not looking too good so far.

One of the few true Wall Street adages that is true is “They slide faster than they glide” (page 18, Layman’s).

Looking to the sectors, with a weak Rusty it is no surprise that most ended lower. Some, very weak sectors as Retail did bounce from lows but it appears to be just that, a dead cat bounce (For you PETA people, remember, this is an old Wall Street saying. Besides, the cat was already dead and was accidently dropped. And, when he was alive, he had a really good life—his favorite thing to do was to walk on the kitchen table after a visit to his litter box. He also liked napping then suddenly jumping up and running around the house. He really enjoyed his house—much more than the people who lived there).

The recently mentioned last of the Mohicans, Biotech, continued its slide out of a “micro” First Thrust. I’ll walk you through this later today.

Okay Big Dave, it’s looking a little ominous, so should we short with both fists? The aforementioned “tailing” action in the indices suggests that they are sold out. Therefore, I think it’s a little late in this cycle to get aggressive on the short side. As I preached, it’s damned if you do and damned if you don’t when it comes to oversold markets. If you short oversold, the market bounces. If you buy oversold, oversold becomes even more oversold and you end up living in a van down by the river (or in the recently mentioned cardboard box).

Speaking of buying, other than the possibility of Gold stocks, you certainly don’t want to be buying at this juncture. Let things shake out.

So what do we do? On the long side, the Gold stocks still look promising but, again, the bottom here appears to be more of a process than an event. Therefore, wait for entries and honor your stops once triggered just in case. On the short side, again, let things shake out a bit before establishing new shorts. Trail and scale on existing positions as offered.

If you are not too busy saving lives, building buildings, repairing automatic transmissions or doing other great things then come to the chart show later today. It’s free and must be good because people often tell me that I’m good for nothing.

Futures are strong pre-market.

Best of luck with your trading today!

Dave