It is hard to believe that in a little over 12 months the entire 5 year rally from 2002 to 2007 has been wiped out. I have been confident this day was coming, but still it has been amazing to witness it. However, we should not lose perspective on what this may mean in the coming weeks. As John Carter of TradeTheMarkets.com is fond of saying, "The first test is a fade, the second test is a go with". In other words, this test of the 2002 lows is more likely to lead to a substantial rally than continued decline. (Particularly since I was stopped out of my long index positions today.)
I have been continually scaling out of short positions over the last two weeks and am mostly in cash while I wait for leading stocks to break out in the coming rally. This is a time for patience, not chasing a trend that is in its last stages. Think about it, the Dow could easily hit its 2002 low tomorrow which is just 355 points away.
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