The Re-Raise

If Tuesday’s rally represented a “raise:” by the bulls, then yesterday and this morning’s action sure seems like a “re-raise” from the bears, as the market has slid down over thirty S&P points in a short period of time. As I have been writing for a while now, corrective markets are seemingly designed to trap you into making big mistakes. The idea is to recognize that we are in an unhealthy market and adjust accordingly, by keeping most of your powder dry and positions small with a tight leash until conditions improve, protecting your capital and confidence as a trader along the way.

While the S&P has so far held 1300 after a quick move below it today, the bears are looking to assault that level again this afternoon. From a sentiment standpoint, I still see way too many traders looking to bottom-fish this market on a daily basis for me to act on the idea that we have actually bottomed. I am willing to turn on a dime if things improve rapidly, but the market has not punished me for being in no rush this far. In fact, the market has punished the mean-reverting trader presupposing that their knowledge is superior to the market’s.

Treasuries are still screaming higher, looking at TLT, but there is not much fear in the air. Central bankers around the world may very well step up with another bailout soon, but they are notoriously tardy in their timing, which means that the markets may need to cry “uncle” before they step in.

At any rate, regardless of whims, possible scenarios, and macroeconomic talk, I am keeping my watchlists tight with both long and short ideas, ready to pounce at a moment’s notice once we get more clarity into this market. We have not made a new low since May 18th, but the bounce has been ephemeral. The bears may have re-raised the bulls, but neither side has gone all-in yet.