Wednesday, May 6, 2009

Looking to Get Bearish Again If/When S&P 500 Exceeds 944

I don't have any specific trade in mind that looks imminent, but the two possibilities I see that look promising are......

1) There is a "controlled" sell-off over the next few days that generates short-term oversold extremes. Initial reactions to major news are often times reversed after the initial knee-jerk reaction, so that would set up a potential bullish trade.

2) A move above 944 on the S&P 500 over the next few days that generates more overbought extremes. That would put the S&P in a major chart-based resistance window, and may draw in much Johnny come lately buying after the news is out, creating a good bearish set-up.

A few weeks ago I touched on the widening spread between the Dumb Money and Smart Money indicators from As of this week, the Smart Money confidence in a further rally has dropped even further, putting it at levels last seen in May 2007 when the bull market was nearing its peak. I would like to see some more signs of increasing bullishness among small traders like a nice jump in small lot call buying and a big jump in bullish % in the AAII survey to help confirm that the Dumb Money is "on board" for the rally.

I'm guessing the earliest possible next trade for the blog would be Friday, but I would want it to look especially nice.


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