Powerful Reversal Catches Those That Panicked Off-Guard; Cover Part Of Your Shorts That Put In Big Reversals Today

August 17, 2007

Today’s reversal is very significant. While it may not be “the bottom,” it definitely looks like one on the short term. However, even if this thing follows through, unless we see a lot of stocks breaking out of beautiful chart patterns with great fundamentals, it will not matter. The rally will not hold. But for now a bounce has to be expected. Intraday it got very very euphoric for the bears and a lot of bulls had enough to finally capitulate and sold into the panic selling.

Overall, I have to say I would not be in too much of a hurry to buy into this bounce, especially with NO great looking charts out there forming beautiful green bases. But this selling did get extreme. The put/call hit 1.36 at the close and was near 1.50 during the worst of the day, the VIX hit 37 before reversing to 30 by the close, and the number of new lows destroyed new highs by 1276 to 33.

The most impressive thing about this rally today was the Russell 2000 index rallying over 2% and the SP 600 rallying 1.7%. This is clearly day one of a rally attempt, with that kind of action. Let’s say that we do follow-through in the next four to seven days. Unless these stocks that are climbing up the industry list breakout of nice chart patterns, like I said before, the rally will fail. So we have to wait to see if we rollover here or if we have set the bottom with great stocks breaking out to new highs. Right now, it looks too choppy and sloppy out there for that to be the case.

The most important thing to remember right now is that cash is king. In such a wild and volatile market, it is wise to remain heavy cash and to continue to operate small on the short and long side, if you must even operate at all. The last thing I want you to remember is that NO BULL MARKET HAS EVER STARTED WITHOUT A FOLLOW-THROUGH DAY. Not all follow-through days lead to a bull market BUT NO BULL MARKET HAS EVER STARTED WITHOUT A FOLLOW THROUGH DAY. Hopefully, I got that into your head.

Aloha and I will see you tomorrow in the chat room!! Cash is king, until the market establishes a true trend. Right now, it is a mixed bag of uptrends and downtrends on all sorts of different time frames. The best know to avoid markets like this. You should too.

Subscribe To Site: