All Trend Models Are Now Short

Today provided all that was needed to swing most of the remaining trend models into short status. However, today's volume was light which is inconsistent with wave 3 of (5), or iii of 1, as postulated by others. The 62% retracement from the November 21 lows lies just below most indexes, which leaves many interpretations on the table. We are quickly approaching a swing turn date of January 22/23 and the post election annual cycle shows a typical end of month rally in the indexes. I think the best approach here is to begin to look for suitable short trades in anticipation of a retest of the November lows in February, but with perhaps a 25% to 50% allocation to the short side. If the expected upcoming rally fails, add to the short allocation. On the other hand if we get a follow-through day, then look for potential new rally highs. I will wade in with a 25% short index allocation on any pullback in case the down trend accelerates, and add to it on a rally failure.

Interestly, the current behavior is beginning to look a lot like our originally postulated triangle. If that is the case, then the down side targets will be easy to project. Presently, the Dow projection is around 6422.

While we now have trend system confirmation of the downtrend, it may still be prudent to wait for a rally to position to the short side. As Dave has pointed out in the comments on the previous post, this current decline could be an X wave or failed 5th wave, either of which will punish the shorts, so caution is still advised.