December 27 2010 Stock Market Update

I realized that I had failed to post that I had closed out my short position from mid-December with a small loss. Did that about a week ago but with the extreme sentiment readings once again elevated I have again taken a short position.

This is the perfect bear market setup: bulls are now investing their egoes in a climbing stock market and will likely buy into any dips for some time. We will know the market is ready to bounce a bit when they become angry and start blaming shorts for bringing the market down, which means they have finally exited their positions.

I consider a possibilty of the bull run extending from here but it will take a clear breakout above 11,782 for me to get behind that. Remember, I called the upside out of the March 2009 lows at 11,000 as early as April of that year. If that call was more than just luck the secular bear market should kick back in to the downside and begin to frustrate the bulls just as the past 20 months has frustrated the bears.

This is what secular bear markets do.

--Fred

Waiting...

It is looking like Friday or even Monday will provide the strike I've been waiting for as the stock market seems to have set up this little counter trend rally perfectly.

I expect sentiment to rise once again with the holiday cheer and stock market bounce and we will then have a perfect two week window in which to pull off the real counter trend retreat back below 11,000 on the Dow.

Whatever position I take I will likely keep a fairly tight stop on it; more on that when the trade is actually made.

--Fred

Stopped Out - Flat Trade

I was stopped out of the SDS trade initiated earlier today, resulting in a flat trade, with no loss and no gain to speak of. My sale was a bit higher than the buy but just barely made up the commission.

I'm prefer that as I do not want to be in the market over a weekend unless we are really building to a panic and the price action today suggest we are not quite there.

I will also point out that historically, buying about two weeks prior to Thanksgiving offers a positive bias, so let's see how next week goes.

--Fred