A Savage Market

The selling is relentless.  They will let it breathe for a couple of hours and then the sellers come back with a vengeance, gleefully selling bounces to suckers who chase strength.  At this rate, chasers who buy up moves who have been getting hammered will go bankrupt in a few weeks as nothing lasts on the upside.  Haven't seen this kind of relentless selling since 2008, and before that, the 2000-2002 bear market.  

The market trades so heavy, as if there are millions of bagholders looking to sell on any uptick, while the support is weak, as the dip buyers have been getting buried and are running out of dry powder.  The marginal seller is much more eager to get his orders through than the marginal buyer.  That is showing up in lower highs and lower lows.  

At this point, the selling begets selling, as weak hands are shaken out and people are just getting tired of losing money every day and some are just throwing in the towel.  I thought we might have a day or two of rallying based on the bounce off of another hot CPI number, but that rally failed like all the other ones for the last 5 weeks.  

Amidst the doom and gloom, there is a glimmer of hope from the market going down too fast too quickly, which is setting up a slingshot bounce play once bottom is hit.  I thought 3950 would prove to be a strong support area, and it did produce a 90 point bounce yesterday off that number, but it was faded all day.  There is a lot of support in the 3850-3900 zone, with 3850 being 20% down from the highs, and 3900 being a heavily traded area in early 2021 before the market went parabolic.  

The bounce back up to 4400-4500 looks like a pipe dream now.  Its not going to happen.  At best, I see a bounce up towards 4150-4200, where I expect sellers to swarm the market like flies to shit.  Its a fully entrenched bear market, something investors are just not accustomed to.  They are used to bear markets lasting 3-4 months (2011, 2016, 2018, 2020), and are probably expecting similar things this time around.  I see very few expecting a long extended bear market like the post dotcom bubble period of 2000-2002, or the financial crisis period from 2007 to 2009. 

I am trading under the expectation that we are in a post-bubble 2000 like environment, so position sizing is everything.  Buying on dips will be small, and only focused on extreme short term selling points where a probability of a bounce are high (like right now).  Shorting into rallies will be big, and concentrated in the most popular sectors during the bubble, in particular, technology stocks.  So I am waiting to put on big size only for short positions, and in the NDX, while buying dips in this type of environment will be focused on the strongest sector which have outperformed, and which I expect to continue to outperform, energy.  I bought some on the dip yesterday, but for small size, and will look to add if SPX gets towards that 3850-3870 area.  

No need to be a hero when buying dips, its not a bull market anymore, so you have to be cautious on longs, and can only be aggressive on shorts.