The week before Thanksgiving I offered two possible scenarios for market action over the last two weeks. It appears that the latter of those two scenarios is now playing out: "number two, we trade sideways to slightly up next week followed by selling into December 6+/- to put in the final low". The part I missed was that the market traded up dramatically instead of sideways to slightly up. However, today's action made up for that. The only problem is that I have so far failed to get an entry in any index short positions. Perhaps the extreme gap this morning was a clue. In any case I will be looking to short any retracement, preferably 50% of the decline from Friday's high for a retest of the November lows.
I believe the Nasdaq 100 (QQQQ) will go beyond the lows possibly as low as 23. Also, the current pattern suggests that it may take two more lows before we get a sustainable rally. I anticipate based on the pattern that we will see a low around December 5 to 9 followed by a 3 to 4 day rally and then another low during the week of December 15. The reason for this is that the decline in the Qs from November 4 to November 21 counts best as wave i of an ending diagonal triangle. So we are likely just beginning wave iii of 5.
Although I am still looking to get short the indexes, I was able to add a new stock short position today and I have orders for four more that could get filled in the next two days. I was still carrying four 1/2 short positions from November, so overall I did not experience much of a drawdown today. My long positions are holding up as I expect they will since we are likely approaching a bottom, and I continue to look for long opportunties during December.
A balance of longs and shorts should work well in this environment.