08/24/2009 Very Bearish

I haven't been trading much because of the new job, but I also never take my eyes off the markets. I just want to say that today's action was, in my book, incredibly bearish. So why did the price go down today, and why is this bearish?

People were rushing to buy right out of the gate and at 1pm there were only sellers left. Did the sellers come out in force, or did the buying just stop? I think it was the latter. No.. more.. buyers..

Listen, no one wanted to chase this thing ahead of all the data this week. To me, that also means no one will buy if the data is good and prices go higher, because then they would DEFINITELY be chasing it.

There is a lot of talk out there in blogs and financial entertainment TEE VEE about how the S&P could go to 1200. I think that's a little ridiculous don't you? That would mean oil could be around $85 a barrel. People will be pissed with gas at $3.00 a gallon +. Now, I was going to post a bunch of fundamental based reasons why stocks could go lower but the charts do a great job of painting the picture, and they are all that seem to matter anyhow, or we wouldn't have rallied this far to begin with, right? Ok,

You need to understand even the basics of Technical Analysis if you are going to trade profitably today. If you are reading this, I assume you do. On the chart I posted, observe the divergence on the RSI and the MACD. The Wm %R is showing overbought and prices tagged the upper Bollinger Band. On the daily chart today's candle appears as an epic DOJI. If you have ever opened a book on candlestick charting and gone to the "Bearish Setups Chapter" the DOJI is probably lesson #1. Lastly, this quote today from James Cox, managing partner at Harris Financial Group says it all: "We're lining up here in advance of the data this week...This is a good time to get out."

So where do we go from here? Well the breakout level would be the first test. I'm going to short the ES and look for a 1016 target. Price may get a short bounce there but it will eventually go lower. I am putting on my shorts now because the easy trade is on the table. Take it while you can. However, I'm not going to be CRAZY about attacking this to the short side (yet). To me, a pullback is definitely in order