Thursday, October 27, 2011

Expect a Pullback

The market did have a more upside indeed and it managed to closed comfortably above the 200 day ma as I had been speculating for weeks. What has caught me by surprise is the absence of a Fib correction which ALWAYS happens at some point. At current levels the market is back to overbought so I expect a pullback as soon as tomorrow to the 1260 area perhaps? Once there, the market could put in one final leg up to 1300+ and complete a 5 wave move from the sideways correction period. And if we get there, I'd consider not only shorting but going leveraged short as it will be a predictable sizable correction/sell off. One of the indicators I follow, the average of stocks over their 20 day ma it's basically at a 5 year high. The only time it was this high was around the end of March-Early April of 2009 when the market was recuperating from a huge 60% sell off. This time, the market is recuperating from a 15% correction so there is a big difference between then and now. And while it's hard to say if the bear market will continue or we will get a pullback to then resume a new bullish leg to 1400, the market will pull back substantially enough in the next week or so.

I initiated a short position at 1282 and will probably cover around 1260 to gain some points. If we sell off and 1255 breaks hard then I'll keep them. But for now, I expect another leg up. I also sold part of my long China position and looking to buy a bit later as it has run up 30% in less than a month.

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