I am Extremely Bearish Now

Today’s action was the clincher.  The charts up until 2:15pm today were lined up for a big drop and that is exactly what happened irrespective of the Fed nonsense.  I understand trader’s fear of the Fed and not to fight the Fed, but the charts today were so nicely lined up for a drop, and I am pleased with their predictive power today.

Based on today’s action makes me now extremely bearish this market for the next 10 to 12 trading days or so leading up to October 2011 earnings season.  My sense is that we are going to absolutely plunge down into the beginning of the next earnings season and then once we bottom out you will see similar whipsaw action like we saw over the the last Month and 10 trading days.  The whipsaw action will likely occur in October as you see both good and bad earnings and outlooks from corporate America.  It will be extremely difficult to trade during that time.

So my take is that the real meat of the short action will occur over the next 10 to 12 trading days.  Essentially I think we are looking at a ‘buy and hold’ short situation from here until early October 2011.

Today’s action was absolutely wild but the next major major battle front is the August 9th, 2011 swing low which will be the ultimate battle for both sides.  Breaking under that low should unleash some very heavy selling in my opinion.  I suspect we should see some type of reversal or bounce from 1100 but it will probably be brief.  I think all rallies should be shorted from here until end of September or early October 2011.

The market now has 1 MONTH and 8 days of sideways trading cause (or fuel) for the next move down.  It has built sideways steam for a new move and that move looks down to me.

As far as the near term action to close this week, I would not be surprised to see a big opening gap and go down day tomorrow, and see a gap that remains unfilled.  The much more conservative scenario is an inside consolidation day tomorrow and then a big dump on Friday.  Tough call on the 2 day action, but the bottom line for me here is to sell any rally.

sp50020110921

Sometimes the market serves up an easy pitch and this pitch looks quite attractive to me.  The bulls dropped the ball big time and the bears took control of the tape.  The market has spoken.

The only remaining doubt I have now about the decline is how we are going to deal with the August 9, 2011 low since it was such a huge blockbuster volume day.  For us to blast through there with conviction means we will need a huge surge in volume.  It suggests something quite ominous may be on deck between now and that swing low.

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12 comments on “I am Extremely Bearish Now
  1. Geoff says:

    I hate to give you a nod because you have been so very wrong for so very long, but i think you could be right. I hope you are right.

  2. Zero hedge seems to be saying that “Euro banking implosion” is the ominous thing that will happen. The run on European banks has already started. The US credit freeze-up has already started. Greece has done everything short of officially announcing that they will default next month. Even if they capture Ghaddafi alive tomorrow, I don’t see how the market can turn around. The die is cast.

  3. Tom says:

    Yes well I am sure there will be appropriate ‘news’ attached to every leg of this decline as the media starts to boil into a frenzy.

    This is going to be really quite interesting how this all plays out.

    I think the market is about to unleash exactly how it feels about everyone. The Fed, the Media, the Government. The market is fed up and is about to send a big message in my opinion.

  4. ed says:

    “Sometimes the market serves up an easy pitch and this pitch looks quite attractive to me.”

    Since March 2009 we were served with such perfect shorting situations only to burned by buying into something that was just too obvious. So maybe I have been conditioned to disbelieve such a bearish low hanging plum. The market is rarely that generous

    The futures are 6 points down from today’s close as I type. I do think we still have a good chance of rebounding tomorrow and maybe Friday

    Never the less I see next Monday and Tuesday as the decision maker

  5. KT says:

    Congratulations, Tom!

  6. Tom says:

    Yea Ed I know what you mean. I guess there is no such thing as perfect as far as market setups go.. just high and low probability setups.

    I suppose tomorrow could be an up or inside consolidation day, but I will be quite shocked if Friday does not show more downside follow through.

    Thanks KT 🙂

  7. ed says:

    We may see a “head fake” breakout of this consolidation only to turnaround and head the other way with a vengeance

  8. ABS says:

    Congratulations Tom,

    Perfect call… Do you see SPY breaking below 110 ?

  9. jsd says:

    There seems to be an unbelievable malaise over the current news. Notice how we hit a low of 1114 intraday today and then turned north with a vengence. Even now, the futures are up over 8. The bears can’t get the job done. Seems like there’s a lesson to learn there.

  10. Tom says:

    Market is just playing head games as usual. There will be bounces but when everyone realizes it won’t bounce any more that is when you get the capitulation.

  11. jsd says:

    I think that we will continue to trade in a range until/unless some “real” news breaks because in a market without fundamentals, predictability makes money.

    The longer it takes to break to the downside, the less likely the scenario of the crash of 2011. People become desensitized to the news, so the news has to get bigger and bigger to create a reaction. Let’s face it, the big money is already tired of sitting on the sidelines. You can see this in the charts (think large volume breakouts in AMZN, CMG, AAPL over the last few days prior to this downside). They want to be bullish.

    It’s going to take a much bigger effort for the bears to take this market anywhere. I think there’s too much money to be made to the upside. I’m not casting any downside bets yet.

  12. ed says:

    Yes most the hedge funds are out but many retail investors are still in and waiting to be “capitulated’ Then we will be ready for a possible bull run and a follow through with the QQQ monthly Inverse H&S

    Earnings season will be starting in about 2 weeks. They will need to be good to pull us out of this bear market trend.

    I have heard the view point that past earnings per share have been skewered by companies buying back stock thus reducing the float to make the EPS look better than it would otherwise be

    I wonder if that will work this time

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