Saturday, January 22, 2011

01-22 the outlook for the week

We have mentioned several  times over the past few weeks that ideally the 1 year cycle would turn Jan 19.  It appears that the S&P and Nasdaq topped Jan 18 and turned down Jan 19 and the trend is now down.  Sell signals were triggered (see following chart).   I suppose the market could reverse next week and prove this to be a minor dip...  If you tightened stops as suggested you probably took profits on at least some long positions this past week.

It appears a 20 week cycle will top next week.  If this proves out it will add additional down pressure to the market.  So I would estimate a reversal up probability is under 20%. 

Given my outlook I have adopted a trading strategy of trading the bear ETFs (QID in particular).  So I buy QID when the market pops (QID is down) and sells when the market is down (QID is up).  I have a core position in QID I am holding longer term.  For example - let's say I hold a core position of 700 shares and trade in/out 300 shares.  Friday before the close I sold 300 shares for $11.06 that I had bought earlier Friday for $10.79.   That was my second sell for the week (having bought some QID for trading the prior week).

If you are unable to monitor the market closely and want to trade a bear ETF position - I would suggest you use limit orders to buy and sell or work with a broker that can monitor for you.

I expect the market bias to be down next week and possibly accelerate to the downside.  Use bounces to buy bear ETFs (short, buy puts)  and use drops to take profits.  Longer holding of short (or short type) positions should be protected with stop orders.

Here is the SPX:

GL traders.  You shouldn't care which way the market moves - as long as it moves.

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