I took profits on my shorts Thursday and went back to cash. Like George says, get the honey and get away from the bees. But I’ve probably taken profits too early again. As you may recall, when I shorted the January 6th top, I took fat profits as the SPX fell down to 900. And that was about 100 points too early. I might be making the same mistake again, so don’t read too much into my move back to cash. I’m actually just looking for a day off from trading, though I may pop up to short Friday’s close.
If you look back at the chart, you will see that the market made a small bounce on January 8th before resuming its plunge. We could see that type of pattern again.
The futures were testing 840 after hours until Amazon’s earnings were announced. Then the shorts threw in the towel and the futes started moving up.
Don’t forget that next week is the first week of February, and the first week of the month is always treacherous because that’s when the window-dressing ends and the jobs report looms. Even though the jobs report comes out on Friday, Bloomberg will publish their survey of economists on Sunday, and the market will price-in those expectations first thing Monday morning. So, you need to think about the jobs report a week in advance.
The SPX’s false breakout above the resistance around 850 may prove to be a very serious issue because it implies a breakdown out of the range may be in the cards. If you want a short position with an eight handle, you might have to get ’em while their hot. We just saw this phenomena a month ago. The SPX broke above the resistance at 911 on the first day of the year, but fell back below only three days later. That false breakout implied a break below the lower band of the trading range around 865-870, and the market wasted very little time doing so.
It’s not a perfect fit, but bulls can pin their hopes on SPY’s three-day pattern possibly being a bullish Upside Gap Three Methods. Also, the plunge in breadth Thursday may be some kind of one-day record. It usually takes a two-day panic to move breadth down from such a bullish extreme to such a bearish extreme. While I don’t regard this as bullish, the market just has to bounce after such a breath-taking crash in the internals, right? Right? Enough solace for the bulls…
Links in Comments
I came across the “links in comments” setting in WordPress and raised it from two to five. It’s used to filter out spam, however, I have the “new posters must be approved” setting turned on, so no spam bots are going to get through anyway.