Thursday, May 7, 2009
Noble Bears - a call to arms
Not surprisingly, the NASDAQ was the first to crack. It held up better than the S&P 500 and Dow Jones Industrial Average in the early spring and thus, appropriately, it will help lead us back into darkness. A call to arms, noble bears, as it is time to fry up some bull meat.
To the charts, a 4 month daily candlestick affair of the NASDAQ ($COMPQ), followed by a 2 year weekly chart:
Now, I'm not saying we won't bounce again tomorrow and maybe even the next day, but it's time for bears to get positioned for some cash register ringin'. And if you do decide to go short the NASDAQ after waiting for a slightly better entry point than today's low (which is a good idea), here's how to know when to close the position:
The black squiggly line on the above chart is the NASDAQ, while the colored area plot in the background is the $NASI or a summation index/medium term breadth indicator for the NASDAQ. The $NASI number isn't important, it's the RSI plot of the $NASI at the top of the chart that is meaningful - once the RSI gets back down to 10 on the $NASI, get ready to close the position (or use stop-losses to protect profits, etc.). Is it really that simple? Hell no, but I betcha it works out just fine in terms of catching the bulk of the coming move down.
I still believe the move from the panic November lows was the intermediate-term bottom and that we have been correcting for almost 6 months now. It's time for the bear market to resume, the pending topping process in the major indices aside. We are going to dramatic new lows in the major indices before the year is over and we are going to get moving to the downside before the month is over. Sell in May and go away unless you're a bear and you like to play [the short side]...