After gapping WAY down at the opening bell, the S&P (and other indices) rallied throughout the day, slowly but steadily climbing back to even on the day. All-in-all a very respectable showing, as the first major test of support at 1050 for the S&P held.
The S&P did set a new intraday low for 2010 – the first of many if this decline continues to unfold as we’re anticipating.
For the next few days at least, we can probably expect a continuation of this rally. Stocks are still oversold in the short term, and with the damn being plugged for now, the risk of a complete washout appears to be mitigated – at least this week.
But can’t stocks STAY oversold for long periods of time in bear markets, you may be asking yourself? A great question!
Yes they can – and that’s why we elected to hold our S&P short position heading into today – it was worth pressing our luck, on the bet that the market may indeed throw up all over itself!
Now since that hasn’t come to pass, it’s time to cover our short for a respectable short term gain. And we’ll try to keep an eye on this rally to figure out an appropriate re-entry point.
If you own a more permanent short position – as I do, I own SDS in my stock portfolios – you may want to just hold. That’s what I plan to do…since I still believe the intermediate trend is down. And we’ll look to add to those medium term short positions when the 1050 mark gets taken out.
If you’re new to this thread, here’s why we shorted the S&P 500 in the first place last week.
And here’s why Richard Russell thinks the stock market is toast.
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