Sunday, March 12, 2006

Sell Sell Sell into any Rally

Markets do not top overnight and neither will this one. Any bounce in the market should be used as a selling opportunity. If you absolutely need to trade on the long side, then make sure it's a trade and nothing more. Be very diligent with your risk management. The more research I do the more convinced I grow that my change to a bearish stance will prove to be correct. The headlines continue to ignore the deteriorating internals:

- Leading stocks and sectors continue to breakdown.
- Short setups look better then the long setups.
- Recent breakouts are breaking down one by one.
- Stocks that looked ready to setup and go, have slowly been shot to death.
- Uncertainty continues to build about Iraq, Iran, economy, interest rates, oil, etc... If the market hates anything that's uncertainty. At this point nothing is for sure, and with an election toward the end of the year, it doesn't seem to be getting any better.
- Earnings are going to be a disaster, but hopefully companies will wash their earnings out so comparisons get easier. This is where I see at least one of the major legs down, if not the "ONE".

The market is in for a minimum correction of at least a month plus. Is there any good news? Yes. Large caps will finally lead the next rally. Since they make up the bulk of the indexes, a sustained move by large caps will provide the type of support that long lasting rallies need.

My worst case scenario, and the one I prefer, is for the DOW to undercut 10K, and the NASDAQ to undercut 2K. At this point I would give this scenario a more then 50% chance of happening based on the technical damage being done. Earnings most likely will be the catalyst to get us really going to the downside.

Keep an eye on the short setups and be prepared to execute. The market is due for a bounce in the short term and looks like it will.

As always do your own research to either confirm or counter what I see. If things change, you will all be the first one's to know. For now, I would be in cash and ready to get short. If the short side is not for you, then take a vacation