By: Scott Redler
Back on April 21st I posted an article titled, “Could We Be Putting in a Rounding Top?” Although over the last week we have been able to measure some decent 1-3 day long set-ups, under the surface there has been more damage than immediately meets the eye. The uptrend held the first time around (which is normal) but with some negative news coming out today the market couldn’t hold.
It’s better to be a little cautious when things get extended and lose out on some money than to get greedy and give a lot back. You have to see the signs early, adjust your size and wait for a complexion change to switch sides. We’ve been out of marco longs ever since the DOW went above 11,100. We started using a 1-3 day sector specific buying strategy. At the same time, we began to identify some stocks that would be shorts if the market were to roll over, especially given the amount of uncertainty out there right now with Europe and Greece, and the looming financial reform bill. Toss in a Fed meeting this week and Goldman leaders testifying on Capitol Hill, and you have a recipe for a catalyst.
Now, 1185-1190 is very important. If we break and close below that level, it will be time to really start measuring shorts. We could see a 5% correction off the highs that takes us to about the 50-day moving average around 1158. The next support area is around 1140. We will adjust the trade as it happens, but that is our thesis for now.
