The bounce on the SP500 was really lousy today both in terms of price advance and in terms of volume. But that is exactly what you want to see if you are near term to intermediate term bearish on the broad market.
It is also good that we did not take out or test Friday’s low because it at least opens the door to more downside. Had we tested Friday’s low swing point and then closed back inside the trading range it would be saying more concretely that we have reached a bottom and should get at least a modest bounce.
But still I think we could bounce more into Wednesday 2:30 Pm time frame. In fact I don’t see the market doing much at all until that time frame is reached. So expect dead money for the next day and a half or so.
The weaker the bounce looks, the more it is saying that the next leg down will be more severe than the first. I have a hard time seeing the SP500 getting much above 1116 in the next day or two. Even if we close near 1116 at the end of the week or slightly higher, it will still create a very bearish looking monthly January 2010 candlestick, setting up a huge potential decline for February.
We could very well hit that 1116 point on an intraday basis in late afternoon of Wednesday and then sell off into the close.
It ‘looks’ like Bernanke will be confirmed from what I have been reading and the traders over and INTRADE seem to agree, so far at least.
Really tough to call how the market will react to which piece of news this week.
But one thing I do know, that regardless of how the market reacts, the change intermediate trend from up to down still seems to be valid and I am expecting much lower prices into February.
Still holding TZA and may add to the position on a big enough dead cat bounce. But holding core short position is the best way to play price action into February 2010 in my opinion.