Where Is the Edge?

There is nothing bullish about this chart, nothing here that indicates a bottom (short term or otherwise) has been made. The chart is a picture perfect intermediate term downtrend, lower highs and lower lows below a declining 5 DMA. It is ugly, unless you are short, then it is beautiful.

It becomes tempting to look for a bounce when markets drop as precipitously as this one has over the last two weeks, but the path of least resistance remains lower. On Thursday I had a good day trading the long side, but I was looking at a 1 minute chart for my analysis and I realized from the moment that I bought that I would exit before the end of the day with a small loss or possibly a decent gain, the only thing I was certain of was that I would not hold the trade overnight. To hold overnight with economic data due in the morning and such a severe downtrend just doesn’t suit my risk averse nature.

The point is, the market may turn higher and make a sustained move higher at anytime, but do the odds favor such a move right now? No. That doesn’t mean it may not happen, it just means that there is not an edge in being long. At the same time do you really want to be short a market which has dropped more than 10%, peak to trough, over the last 9 sessions? I don’t, it is too dangerous, some of the sharpest rallies occur in a downtrend. These rallies will typically fail, but if you are short at the wrong time they can be devastating.

Tomorrow morning the market will have important jobs information to digest and the market reaction could be in either way, regardless of how “bullish” or “bearish” the number may be. It’s always about the reaction, not the headline…

For most people, the best bet is to start the holiday weekend early. If you are going to be around I will be live on STOCKTWITSTV right at the close, if you are going to be doing something else, have a fun and safe weekend and you can always catch the replay here.