Random Thoughts

Referring the chart below, notice that the S&P made multi-year highs and subsequently stalled short of those highs (1). It then sold off hard (2) and pulled back (3). This action set up a variation of a pattern I have dubbed a "First Thrust." See the article above for more details. On Friday, we saw nice follow through out of this pattern.

I use the world "nice" in terms of my positing and technical analysis. I'm not happy that the market went down. I'd prefer if it just climbed steadily for years and years. Unfortunately, unless you're Bill Clinton, what is, is. So, I am happy that the charts worked. Forget about your bias and what you hope will happen and just follow the charts. What is, is.

As this market correction (which is now a bona fide slide) began to unfold. I wrote and spoke (see webcast archives) a lot about the ebb and flow of using money management and the charts to adjust your portfolio. Your longs begin to stop out and you start establishing shorts. You don't make big picture predictions. You just take things one day at a time and let it all unfold. And, you end up net short in a down market.

So what do we do? Take partial profits on existing shorts as offered and trail your stops lower. Further, honor your stops on any remaining longs. Since the methodology is pullback in nature and the market /most stocks/sectors are making new multi-month lows, they aren't a lot of new setups. This is probably a good thing since the market is becoming oversold. Therefore, manage what you have and wait for the next cycle.

Futures are flat to firm pre-market.