Today was a damaging day as the 50-day SMA was finally broken intraday, we bounced, and ended up closing below it near the lows of the day, a very bad sign.  The bottom bollinger band was broken in the S&P 500 (SPX), another bad sign.  The last level of support before a larger fall can take place was the lows of today around 1294 which was support established on Feb 24th.   A move below that is likely to see us test 1275 and then the 100-day SMA of 1255.

We are still in an QE environment though and POMO resumes next week.  Shorting against QE is not typically a winning play, but we are winding down into the last quarter of QE2 with no reason to believe we will see QE3 anytime soon.  A downtrend, like we saw last summer, could be coming up in the near-future. Last summer saw the downtrend end and the bull rally start when QE2 was announced in September.  With over 3 months left of QE, I still believe we will find a support level soon to resume our uptrend, possibly tomorrow if the ‘day of rage’ blows over and strong iPad sales dominate the headlines.

Since we don’t have an “edge” in knowing the direction anymore and it is unsafe to simply overlook the technical damage and buy, I have reduced all of my non-biotech stocks for this simply reason to much smaller positions therefore I’m in mostly cash.  Technically, we are a bit oversold due to the fast move down so we are setting up for an oversold bounce.  I just would not trust buying the bounce aggressively and assume another V-shaped recovery.  We may have one of those recoveries, I just don’t see a reason to bet heavy on it.  If we break below 1294 tomorrow, I may even play the darkside with index shorts such as SDS (2x inverse of S&P500) or SPXU (3x inverse of S&P500). For now, I’m simply being patient and sitting on my hands.

Most retail investors feel obligated to make a quick decision and either buy or sell.  Sometimes just sitting in cash and doing nothing is the better route. Do not ever feel the need to make a move, especially if you are uncertain.  Wait for an “edge” to develop and then quickly move.  That’s my strategy.  Good luck!

No positions in mentioned stock

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