Shorting the Bounce

The oversold bounce is upon us, and we got as high as 1940 yesterday, which was slightly above the 1936 top of range that I was thinking of, but I wanted to avoid getting run over by a runaway up move so I waited till today to get short at 1933.50.  It is possible that we get another up day today but I wanted to make sure I got in the short before the train left the station.

On Monday, permabear Marc Faber was talking relief rally and thinking we would bounce, unfortunately his call was a day late as most of the move had already been made off of Thursday's low.  When I see permabears go on CNBC and talk about an overdue bounce, then I know that there are a lot of others looking to try to catch a rally.

I've seen comparisons to the late January selloff, and this is far more insidious.  I don't see this ending quickly and making a quick V bottom like the last time.  The rally has gotten more mature, and this time, you are getting much closer to the end of QE than you were in January.  Geopolitics is a convenient excuse for the down move, because you can't talk about the Fed all the time because it would bore the audience.  But this is about the Fed, and the ending of QE, which caused convulsions in the market in the summer of 2010, and the summer of 2011.

I am getting a strong sense that this pullback will last at least another week, longer than I initially expected.  Perhaps we get the bottom next week after options expiration and the put protection isn't quite there, making it easier for the market to panic.