The selling has been vicious. I don't think I can remember a time when the market sold off this hard below the 50dema without hitting the 200dema. We may see a brief bounce Monday and Tuesday, but the poor performance of AMZN and AAPL today does not lead me to think a significant rally will be seen before the indexes hit their 200demas, and when they do it would be prudent to exit short-term short positions.
The above chart shows the traditional McClellan Oscillator (not ratio adjusted). We can see that the Oscillator bottomed Feb/Mar 2009 and Oct 2009 below the -300 level, but the market did not bottom until several days after the Oscillator bottom. In each case, we saw a positive divergence in the Oscillator with higher hook lows. Although it is not required, I expect we will see the same thing this time, which is another reason not to expect the low of wave (A) down in the indexes just yet.
I am short AMZN, AAPL, PCLN, RIMM and long the SDD. So far, so good. I am still short GME on a medium term basis and expect it to move much lower even with share buybacks. It is way too late to add new short positions. It's time to let existing shorts run and wait for a rally for new opportunities.
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