January’s Clear Short Setups; Keeping an eye on Vix 55-57; 2 distribution days on the Nasdaq in past 3 days NEVER good

You can probably enter some quick shorts if the Vix gets over 51 (Wednesday’s Financial Meltdown high on the fear gauge) since the Vix will probably move higher than that if it gets near that area.  Currently the VIX sits just below 50.  However, if we do get a spike up above 55 I will be adding hedges again since 57 will be a tough spot to take out on the short term.  I’m not really sure “fear” can get that high when we have Bush being taken out of office in about a week, therefore I am cautiously short here (On the other hand, many people are selling assets based on Obama taking the role as new President.  There has been some opinions circulated around on the media suggesting that Obama will immediately be tested with a crisis or “event”).  There’s the possibility that the bulls pull together a 2 punch combo soon.  For instance, if oil reverses, energy can rally (despite that possibility, I don’t want to make that trade).  Or, bears can just cover and we can squeeze.

Whatever happens, this market is done.  We are heading lower…

January so far has given us a classic bear setup.  It’s so classic, so by the book, so simple, that I feel like something has to go wrong.  That, something will happen and catch the bears off guard a little.  Know what I mean?  Look at the setup!  So perfect…

–  Low low low volume rally from late November to early January

–  laggards leading that rally; numerous spiker-stocks/relief rallies straight up to resistance

– November lows taken out

–  Many leadership stocks reversed (AFAM, APOL, CSKI etc) on HIGH volume. See Danny’s Leadership Index update.

–  Gold back under the 50/200 day

–  Oil retesting lows

– Cramer says buy the dip

– CNBC says get long

– Vix under 40 = too much complacency

–  Dip-buying in C turns into bank/financial fail trade #1,502

– scans for breakout stocks discouragingly very low, but people still buying them

–  AAPL fails 90

… it’s just all too easy.  I’m sure you can add a number of more flags.  After yesterday’s distribution day of -3% across the indexes, the one thing that discourages me from getting aggressive short at this moment is that it feels like that’s the crowded trade.  We’ll get our setups, then we’ll attack.  I go for the wave, and not the chop.

So, what’s gonna happen on the 21st or 22nd Powell?

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