Thursday, July 8, 2010

Correction or Bear Market

Sometimes it is hard to explain, but last week didn't feel like a bottom, and yesterday felt like a short squeeze.  Obviously I sold too early on Tuesday, and started my short campaign too early.

But depending on whether this is a correction or a new bear market, the strategies and trading patterns are different.  I have rarely seen a correction go this deep and not turn into a bear market, or a correction of 20% off the highs, which would be around 970.  Corrections usually don't last more than 2 months, so this downtrend is past the limits of what a correction should be.

I believe we are in a bear market, and thus I am shorting the rallies.  Until I see price action to the contrary, I will stick with that thesis.

4 comments:

Tsachy Mishal said...

The 12% move lower without a bounce was also atypical. So while the bottom might have felt different, the decline that preceded it was different as well.

What was typical at the bottom was the bearish news stories (Prechter, Roubini, Biggs) bearish trader positioning (Rydex, put/call) and bearish sentiment surveys (II, AAII, and Market vane).

I dont know if that was "the bottom" and am currently debating that myself. But if it turns out to be "the bottom" it would not be totally surprising. It certainly had a good number of ingredients of a bottom.

Petsamo said...

Currently, I don't have the balls to short. Selling longs before the top does enough damage.

iv said...

just got short ES at 1064....will post my exit here...stop 1072

Anonymous said...

Friday certainly felt like "a bottom", but it is not "the bottom". Look at the charts from the past 2 years. 900 was the trend line. Add 6% for inflation and accumulated profits since then and you get a bottom near 950.