Close But No Cigar

The attempted breakout has failed, but a resumption of the downtrend has not yet been signaled. All indexes but the Dow are at or above the lower trendline from the November 21 lows. It is not at all uncommon to see whipsaws like this in January. Look at the Qs in January of 2000, 2006 and 2007. I realize that sentiment is or has reached extreme levels, but after the kind of decline we had last fall, this can sometimes signal the initiation of an uptrend. I am hearing too many comments about this rally failing from public domains to want to get fully short again. NYSE new lows were 7 on Wed, 8 on Thu and 7 today. That does not support the idea of distribution. At this point I am cautiously bullish on this rally until proven otherwise. I think the best opportunity for getting short again will come in February. Regardless of what I think, I will go with what price dictates.

Today I exited short positions in FCN(+28%), FAST(+32%), GPC(-4%), STRA(+9%). I was stopped out of AFAM(-15%) today, but am currently up in MEA(+22%). I am still short in MCO(+39%) and JPM(+12%). Note, I mentioned AFAM and MEA earlier this week.

Next week, I will be looking to add index long positions if the rally resumes, or index short positions if the decline continues. However, there is support at Dow 8350 and QQQQ 28.50. I would not be at all surprised to see the indexes take off Monday morning with the employment report behind us, but upside targets are diminished with the depth of this week's decline.

My recommendation is to be cautious in the current environment with smaller position sizes and fewer positions.