Russell 2000 Shows that this is a Very Tough Market to Trade right Now

Right now we are in a grey zone with the market.  And grey zones are very difficult to trade consistently.  When I say grey zone I am talking about difficult swing trading ranges that can be difficult to time because they do not push as low or as high as you would normally expect them to.  There is a lot of ‘noise’ and the follow through is frustrating.


I personally took some bad hits by holding on too long to my TZA short position during this recent rebound rally because I did not really think it would bounce as high as it would until the rally was already half way completed.

I could be wrong, but I think many who were bearish did not expect the market to bounce as high as it presently has from the high volume lows of a couple weeks ago.  I was looking for more persistent type down action at first, but I was clearly wrong on that front.

The market is definitely showing its true colors in terms of trading scenarios that I have talked about in the past on several occasions.  Right now wide ranging difficult swing trading ranges are to be expected.  It does appear that the next small down cycle should start soon and perhaps take the market down (in terms of the SP500) slightly below the 1050 area, but I suspect that it will only be slightly below and not significantly below.  The key level of 1116 on the SP500 is the one that will determine whether we are ready for a new down leg now in my opinion.  If we are able to hold ground here and trade above that level, then any new decline in the near term will be in serious doubt.  However, if that 1116 acts like a brick wall, then I think the door starts opening to another down leg soon.

This is exactly what occurred in the russell 2000 index in the first green shaded box in the chart above. 

This big counter trend rally tells me the market still has a lot of ‘fight’ left in it and that the trend is not clearly established as being down, not even close.  At this point it is still a ‘shotgun short’ type of market in my opinion meaning that if you do want to short the market, try to get a medium sized chunk and then run for the hills because there will likely be big counter trend rallies still, as opposed to persistent down.

If we are going to enter a severe bear phase down (I currently don’t believe this to be the case) then the key thing to watch for is the 20 week moving average crossing down through the 50 week moving average.  We are a long way away from that, but honestly I would rather wait until that point to get aggressively short when there is enough ease of downside movement and momentum for down price action.

Posted in Market Timing, SP500

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