Where are the bears? Will they step in over the short-term?

September 20, 2006 · Print This Article

The bulls continue to control the ticker as the major indices have managed to stay in overbought territory since 9/12 when the SPY closed the day at 131.69. September has certainly not lived up to its historical billing so far, although I would not count out the bears just yet. The second half of September is far weaker historically than the first and given that the “big day” has passed we shall see if the bulls have enough steam to keep the market moving upward.

I still believe the market will sell-off over the short-term before the bulls can push this market substantially higher. It is hard to ignore all of the bearish indicators out there right now. The major indices continue to be “overbought” to “very overbought”, the VIX is nearing historical lows, the market is in the midst of a very weak seasonal period, just to name a few.

Days like today are quite rare. QQQQ gapped up and finished up 1.5%. Historically, when this occurs during a fed announcement this does not bode well for the market over the short-term. Furthermore, fed day trends have typically seen a short-term reversal going forward. As you can see I am still bearish over the short-term, but if we can move decisively higher and hold I will officially accept defeat on this one. Our strategies have not suffered at all as we have actually made money during this period. Our trade yesterday is looking better and better as we are now up 35.7% in our ETF Extremes strategy with a 100% win ratio (8 out of 8 trades YTD). If all of the major indices reach a “very overbought” state I will once again be tempted to take a short-position. Conversely, if the market sells off and we reach an “oversold” position you can better believe the bulls will come back in and I will be tempted as well. Lets see what happens first.

RSI Wilder (5) for September 20, 2006