BETWEEN A ROCK AND A HARD PLACE

One of my goals this year was to trade more because I tend to be too damn picky. As a result I wind up wrestling around with scenarios like the above. This is the Russell 2000 and it represents the dilemma that exists in alot of markets right now, short term very oversold which has led to a small bounce so far. The purple line on the chart is the best accumulation/distribution indicator I have, and it is bullishly diverging. It does not speak often, so I always pay attention when it does. Going to the next panel, we have the long term momentum rolling over here and now have an overbought condition against that new down trend. This is bearish. Next the two shorter term momentum indicators. The first one is bullish, the second bearish.

What to do?

In my mind that is an easy answer, nothing!!! If a trade just not just jump right off a chart at me I do not force things. I do miss moves because of this, and I always wish I had not missed them when I do. However, there is nothing worse than looking back at a chart after a loss and thinking, "what the hell was I thinking on that one?"

I had predicted a small bounce, so far this has been correct. This bounce is certainly small. If this is all we get lookout below. The one thing that bothers me more than anything else, which I told a friend at lunch yesterday, is how the individual stocks look. All the way up in this trend all the key stocks were strong, in many cases more bullish looking than the overall indexes. This condition has reversed. Many of them are much weaker overall than the indexes. I have had a tough time finding any good long stock setups. This is not what a bull market should look like.

This is KLAC a chip company and it shows what I am talking about. This is far outracing the overall index decline. Now you can always find stocks like this in any market environment, but there are an awful lot that look like this.

Here is what this means in my view. The levels we have dropped to here are now very important. Since we have alot of underlying weakness at hand, we need a strong rally out of here for this bull market to stay intact. We know the PPT is really trying to make sure that happens, and they may very well succeed. However, if they do not, we have recently seen how a selling wave from funds can easily overcome their little futures games with volume. If we stabilize here and the volume once again slows way down, they can easily keep this propped up. The key is always to watch the 20 and 50 day low areas. This is where funds often enter and exit. We saw once we went through there on the downside how quickly the selling showed up.

These guys on TV may jawbone about how bullish they are, but I am fairly sure that behind closed doors they have their triggers ready if we don't hold here. No need to panic yet, but if you are heavily long and these recent pivots do not hold, I would suggest re-examining your view. Until then business as usual for average Joe.