Long Time No Short

It has been almost a month since we have seen the bears really seize control of the market the way that they have today. All of those “support buys” and bull flags needed the bulls to actually step up to the plate with strong bids, otherwise this is what happens. At issue now is whether we are starting a meaningful leg down in the broad market, or whether we are simply working through the trading range that I have been discussing for the past few weeks.

Indeed, my inclination is to respect the 1300-1306 zone for support just as much as I did the 1330-1332 area on the S&P 500 for resistance. In other words, seeing as we already pulled back to 1311 this morning, I am going to take a pass for now on betting on an extended decline. If we are going to see that, then I suspect first there will be quite the battle of coming to terms with the lower end of the range, just as there was for nearly eight sessions at the upper end.

Energy and materials are seeing the harshest selling, while airlines are one of the few areas attracting buying. I am not seeing awful selling in my longs to the point where I am getting hit with stop loss and after stop loss. Instead, the underlying action is not quite as bad in many names as you would think, for now. Aside from approaching the bottom end of the range, the S&P also tested and so far held the 20 and 50 day moving average convergence, which is another reason to be careful with shorts here. Once again, even if we lose those reference points, the idea is that we will at least spend some time coming to terms with them first.

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