Weapons of Choice

___________________

We have some modest downside follow-through to Wednesday’s late-day selling going on this morning, but it is nothing too scary yet. The bulls, once again, defended the 1220-1230 zone on the S&P 500, which represented the very top of the prior multi-month trading range. However, to beat the drums again, the more times you probe a key reference area, the more likely it is to eventually give way. So, at this point I would resist the urge to complacently buy the dip with no clear exit strategy in place.

We also have a marginal breakdown from the widely-monotired symmetrical triangle on the S&P and many other daily charts. This could easily be a trap to shake out weak longs and punish eager bears, and would be the bulls’ ideal weapon of choice to launch this market higher into the holiday season. Recall that from failed moves usually come aggressive moves in the other direction. We saw that yesterday, in many respects, with seemingly bullish consolidation after bullish consolidation lined up and raring to go higher, only to suddenly be hit with the late-day sell-off. Thus, there remains considerable risk to either side of the trade.

I have tightened up my portfolio considerably inside 12631, locking in some gains and taking a loss in my 1/2 position starter in SNDK this morning. The good thing about layering into positions instead of buying or shorting all at once is that you can get out rather easily and unscathed should the trade work against you. That is exactly what happened with SanDisk, and that is our style in 12631.