Drawn to 12,445
    For the past few trading days, I have been grappling with a reason to be bullish. My market timing model is oversold and certain market leaders have shown strength. At the same time, the bears have sown such devastation that I think we are do to have a round of short covering that will lead to a quick, brief rally. On this rally, the bears would draw more victims into this market and then push prices lower. With this backdrop, I keep waiting for a rally. The bears will not allow a rally to materialize.
    Since the DJIA peaked at 14,164 on October 9th, the bears have seized every opportunity that has been presented to them. Looking at a chart, the DJIA pulled back from its peak to test DJIA 13,500 on October 19th. A failed rally into 14,000 on October 31st set the stage for the past month. During November, the DJIA cut through every piece of support. First 13,500 fell. From there, we lost the 200 day moving average. Next the August 16th low of 12,845. The only real point left to test is the intra-day August 16th low of 12,445. Having been so successful, the bears seem intent on pushing the market to this level.
    Within this framework, I expect prices to go lower. I will use rallies to further reduce my net position and move toward a flat position as the markets head lower. From a trading perspective, I am in a cautious mode. Sensing the market is heading lower, an obvious strategy would be to go short. However, since we are oversold there could be a chance that a quick reversal causes maximum pain. Take Google (GOOG) as an example.  Today it opened at $680.20, quickly moved above $693 and closed at $666. While this volatility provides an opportunity to profit, mistiming a trade would be disastrous. Therefore, I will trade this market with caution, not fall in love my positions and attempt to increment my return in an uncertain enivronment.
awesome post Sean, I couldn’t agree more. The volatility is not something to mess around with for the emotional investor. Today is another distribution day for the market and I don’t see anything holding us up until the level set forth above. I thought a rally was coming today, I guess I thought wrong.
I agree also. My weekly charting of the DJIA – http://tinyurl.com/2tnmqv – shows a lot of bearish signals and only a couple of bullish ones. I’m dying to start selling calls, but fear the dead cat bounce that lasts for a few days as opposed to that weak attempt on Friday. If we get a good solid bounce I’ll be selling some long positions and selling more calls to short others.
The S&P was ripe for the picking today. There’s an incredible resistance at 1440. Purchasing an OTM at the SPY 144 level made you a quick 30-40% profit today. I’m still green at investing, but the volatility’s somewhat exciting. If the S&P falls under 1400, we’ll blow right by the August lows. I don’t see the end year rally that most folks are talking about.
Have to agree with you here Sean. Seems like there is no reason that the market will go higher in the short term. Lower prices are to come, look out below.