To Short or Not to Short, That Is The Question

First off.. Christian at Perfect Stock Alerts offers these insights:

Now is the time to short

Christian has been downright obstinate about his belief that this rally is nothing more than a short-term bear rally that is destined to break down 2200 points to the 8000 level.

Market will decline 2,200 points

Great Depression 2.0

Now, discerning viewers/readers will note that Christian was a bit early on his H&S breakdown (as was I). We have seen a very low-volume rally over the past week, but one that has added some 600 points to the DOW since we broke through "neckline" territory.

But he makes a compelling case on the DOW with that "inverted hammer" after 6 days of upside. But the REAL QUESTION is whether this shorting opportunity will merely take us back to retest the previous low, or will it break down to even lower prices. It's truly been amazing how they have been able to prop up the markets on such low volume. We had the lowest volume on the DOW in over 6 months (someone said a year.. but have to confirm).

I think we're undoubtedly looking at a retest of the previous lows, or at least 1040 on the S&P. If that fails again, I'm would suggest that it's going to confirm that we're looking at a failed Bear Market rally that continues the bear market that commenced in 2008 and bottomed in March, 2009.

So.. back to whether longs should sell tomorrow or Thursday, and whether Shorts should add to positions? Since return OF Capital is paramount over Return ON Capital, combined with the FACT that we're looking at extreme overbought conditions AND A GAP-UP from a previous low, I would suggest taking money off the table.

I'll be looking to resume my shorts tomorrow with anticipation of at least seeing the S&P revisiting 1040, or a nearly 60 point haircut for that index. After that, I'll have to assess the situation and odds of the trade continuing to new lows. But I'll be waiting for the markets reaction to the retail sales report pre-market.

Retail Sales consensus

Economic Calendar

I'm also looking at the Euro/USD as we may be seeing the Euro topping out along it's long term trendline:

EUR/USD

If you insert RSI and Stochastics into the lower indicators, and Bollinger Bands into the upper indicators, then click the "draw trendlines" box, you can draw a line from the top to the current peak.

In the past, when the Euro descends, the dollar climbs and it put downward pressure on the US equities markets.

I'll also be considering global markets in determining the best time to short. Right now it's green across the board in Asia, which is often a leading indicator of how Europe and the US will perform the following trading day.

Global Markets

And as Christian pointed out, the FTSE (London Market) appears to be reaching it's top and may prove a critical indicator for the rest of the global markets.

Also, in my choice of shorts, I'll be looking at the Real Estate and Ultra-Bear Russell 2000 ETFs (DRV, SRS, and TZA respectively), while also looking at the Ultra-bear Banking index (FAZ). BGZ (ultra-bear DOW) may also prove a leading indicator of whether we have a market top.

Ok.. that's all for tonight. Be nimble and preserve your capital.

Scrutinizer