July 21, 2017

Tires Stuck in the Mud. Bearish Looking Forward?

The market basically finished flat today. Vacillation was limited as the bulls and bears played tug-of-war all day. With that being said, I am still short-term bearish (seem to be the only one right now) due to the short-term overbought nature of the Russell 2000 (IWM) and several other ETFs I follow. I mean come, IWM has moved roughly 10% in the last seven trading days. Moreover, there is an unclosed gap in IWM at the $65.03 (from 6/14). Couple the aforementioned with upcoming seasonal bearishness and yes, I think we could see another move to the 1090-1080 level.

IWM Gap (click to enlarge)

Again, the seasonal picture looks incredibly weak as we move into the latter part of June. Keep in mind, the market is currently overbought and extremely overbought in the very short-term. Couple that with the next 4 out of five days historically bearish and one can quickly see what is going on. Yes, there are no guarantees in trading, so all I can do is trade probabilities and as a high-probability mean reversion trader I will almost always trade a short-term overbought/oversold extreme. If it works great, if not I will manage my portfolio appropriately. Losses happen, this is just part of trading. If you remain disciplined in your risk-management approach then you have won 90% of the battle.