Tuesday, February 17, 2009

Downtrend Accelerating

The markets have finally gotten in gear to the downside. If you have been following the market's signals over the last 3 weeks, you should have been initiating and adding to short positions. At this point there is still a little time to add to shorts, but for the most part the seeds should have been sown as the trend has germinated. I still have 4 open orders left for new short positions, but I won't be disappointed if they are not filled as I am well positioned. The only thing to do now is monitor your positions for opportunities to take profits. Expect this to take some time as we are still at least 2 to 4 weeks away from a bottom.

(The Qs and the SMH are the only majors that have not made a new 3 week low and they offer opportunities for new shorts with the QID and the SSG, respectively.)

An exception to this scenario would be if the negative breadth surpassed the negative breadth from the Sept/Oct crash. If that were to happen, then it would be a signal that we are in primary wave 3 down and not intermediate wave (5) of primary wave 1 down. The outcome would be a crash to levels unimaginable to the public with the Dow falling to 2700 or below. I don't think that will happen, but it is an outside chance that we should monitor. If we were to see such an acceleration in negative breadth, it would be a signal to hold short positions for larger profits, and possibly add to positions, although the volatility could make that tricky.

In any case the weak close today should lead to more selling tomorrow. However, we may see a bounce at the open as the Dow closed just pennies shy of the November closing low.

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