although i went to a near-term bullish bias exactly one week ago today, i am more neutral as of today. in addition to the conflicting cross-currents of potentially bullish technicals and the recent high bearish sentiment readings (bullish from a contrarian perspective) against the backdrop of deteriorating fundamentals (bearish), we also need to consider that the bounce that began after the market hit support last monday has moved up sufficiently in both time and price to alleviate most of the oversold conditions and sentiment extremes. for example, these 4 hour period charts of the SPY and QQQ show that we have hit the 50% and 38.2% fibonacci retracement levels, respectively. (on the Q’s, i used both the actual market top and the subsequent peak reaction high that fell just shy to provide a fib cluster of those two 38% retracements). the 38.2% – 61.8% retracement levels are the most commonly hit levels on a counter-trend bounce (correction) during a larger trend so if the market is still in a larger downtrend with new lows to be made then it is very possible that this morning’s gap up was the end of an upside correction in a longer-term downtrend. keep in mind that i am not saying this is my preferred scenario, as i really don’t have a strong opinion either way right now. just that this is a very likely possibility, just as these levels (this mornings highs) could just be speed-bumps on a rally that’s heading another 100+ SPX points higher before taking a real breather. food for thought and another reason to avoid being too aggressive on the long or short side at this point and becoming complacent with your stops. one of my primary goals on this site is to share my analysis of the market and trade ideas but as importantly, to share when i don’t have a strong opinion as over-trading or continuing to trade/hold when the technical picture starts to become unclear is probably one of the biggest reasons that otherwise successful traders often give back some or all of the gains they’ve made on a successful run.
“To invest or speculate successfully, one must form an opinion as to what the next move of importance will be in a given stock. Speculation is nothing more than anticipating coming movements. In order to anticipate correctly, one must have a definite basis for that anticipation… ” -Jesse Livermore
