Thursday, August 19, 2010

Wave B Up May Be Over

Markets failed this week at the 50dema and have now come under the critical level cited this morning. We only have two possible outcomes remaining. One is that wave [x] will be deeper than expected. We would then look for a retest of the August 9 highs at best. The other is that we are now in wave C down. In the latter case, the August 9 highs would be the stop level.

Today's action, barring a late day turnaround, will result in 5 distribution days over the last three weeks. So, I fully expect that IBD will call the market in correction. Going short on this call will be one strategy to consider. The MACD strategy will require another rally to the declining 50dema to give a true short signal, however, failure below the zero line will indicate a sell signal today. The Weekly/Daily strategy is a mixed picture as I have viewed July as the low month, which technically means that one would have to wait until September to go short below the low of the high month which is August. Even so, given the overall weakness, reversing and going short here may not be a bad idea.

We can speculate about future outcomes and oftentimes arrive at reasonable conclusions that prove to be correct, but when the market action and price violate the premises of those speculations, the only thing to do is to re-evaluate and go with price. At this point, I have raised cash based on today's action and will be looking only on the short side from now until the first part of September with the view of building into index short positions based on my posted strategies.

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