For those who did not read the initial " Big Short Articles", please click on below 3 links
As said prior, my believe is that we will see a sharp pullback into October 2012 to continue the 1998 Chart Pattern of S&P500.
Besides the fact that September and part of October is seasonally the weaker part by average, we have now 2 more indicators that support my assumption that we will see a such decline
NAAIM SURVEY OF MANAGERS shows a staggering 82% of BULLISH PERCENTAGE.
Needless to say that those extreme high numbers do not bode well for the market to rally much further. The odds are very high being on the short side.
SENTIMENTRADER COT CHART reveals that we have the largest Commercial Net Short Position seen for awhile. Needless to say, that the last time that happened was April 2011 before the Storm started and we saw a sharp decline into September and 1st week of October.
NYSE SUMMATION INDEX remains on SELL SIGNAL and it should NOT be ignored
SPX 1998 Comparison Chart / 2011 - 2013
The odds that the below scenario will occur are increasing !
Again, back in end of September and first week of October 2011, OT highly recommended to turn bullish ( please check archive Oct 2011 ) and now we turned bearish for next 2 month or so.
OT refrains from shorting Miners & Precious Metals as previously highlighted. Needless to say that our usual Perma Bears are trying hard to do so. OT also refrains from shorting the EURO.
OT does not short oversold sectors with the least bullish percentage. OT likes the low bullish percentage and oversold monthly charts in this sector.
WE already know that we reached the 2008 trendline and a breather is necessary to take us beyond. In addition we have extreme bullish sentiment, several sectors with high bullish sentiment, divergence in stock above 200 DMA, sell signal in Summation Index and very high Net Short COT Numbers.
Perma Bears that kept shorting the strength of this market are highly likely out of funds and have waved the white flag. The Paper Trader Perma Bears, who on a daily basis carry high double digit shorts for past year or more, are certainly not effected as they dont really trade. If they would really trade, they would not short on a daily basis and would be far more prudent with their shorts. To short a market takes far more patience and of course anticipation as the down moves are very fast unlike the climb of the wall of worry. Such fast decline usually makes it very difficult for bears to enter. By the time they enter, the market has either a strong B rally or is near the bottom.
Most traders or investors do no know how to have the patience to short as rallies in between are likely to take their stops. They might enter to early or even to late. Hence, my suggestion is to reduce equity position to a personal comfort level and await the re-entry once we reach specific oversold levels that allows to take the adequate risk to re-enter.
For those who have more expertise to short the market, it does not make sense to bet house & farm on it due to reasons of greed. An adequate percentage of total portfolio is highly recommended and NOT ALL IN :-)
Good Trades and Happy Holidays