CLICK HERE TO VIEW THE 8-11-12 MARKET UPDATE VIDEO.
In this video I reiterate my longer-term bearish views while also highlighting some technical evidence that increases the odds of a bounce soon. For those who do not have time to view the video, I basically highlighted that the QQQ 4 hour chart that I have been focusing on lately has now hit the second target, where I had stated that a reaction (bounce or pause) might be likely, albeit most likely fleeting. Some of the technical evidence to support a bounce here (which would need to happen soon, such as maybe immediately following a gap down tomorrow), is the positive divergences in place on both the SPY & QQQ 60 minute time frames as shown below. However, as stated in the video, the divergences will likely be negated on any additional significant downside in the markets.
Bottom line is that this market could slice right through the nearby support levels and keep falling or it might decide to bounce first soon to help alleviate the near-term oversold conditions. Therefore, one might consider being very selective on entering any new positions at this point or possibly reducing market exposure (via covering some positions or hedging with longs) for those positioned aggressively short. For less-active traders with a longer-term horizon who are position short for the additional downside targets,my best guess is that any bounce from at or near current levels will be relatively limited in both scope and duration (i.e.-price and time). However, as always, make sure that your position sizing and overall market exposure is commensurate with your risk tolerance. In other words, if you are 100% short and plan to ride out any bounces, have identified your stops or exit criteria and if so, will you be comfortable with the draw down that your portfolio will suffer if the market does bounce sharply? Tomorrow I will work on posting some key overhead resistance levels to use as possible stop levels (for those short), long entry triggers (for those bullish) or re-shorting areas (for those bearish).
