TradingMarkets.com
I'm Trading In Bear Market Mode
Thursday June 1, 8:57 am ET
By Rob Hanna
As I do at the end of each month, below is an overview of what I'm seeing:
Positives:
Sentiment -- While fear levels are quite to the point that extreme, some measures of sentiment are starting to show signs of excessive bearishness. The slide of the last few weeks has spooked some investors. Overall, this is a mildly bullish development.
Negatives:
Foreign Markets -- In the "Taller They Are The Harder They Fall" category foreign markets have taken a beating. Some areas like India and Eastern Europe have come down so hard that accounts in those areas may take months or years to make back losses. Money being lost overseas is not a positive for the US.
My shrunken watch list -- ItÂ's been over three years since my watch list has been this small. I am not finding anything with intermediate-term potential. Bases have been destroyed and it will be some time before most of them can be rebuilt.
Accumulation/Distribution -- The market has been selling off on higher volume and rallying on lower volume fairly consistently in recent weeks. This will need to change if there is going to be a sustainable rally.
Breadth -- Breadth statistics have been weakening for months. I showed many charts in this column over the last few months which illustrated this. This is what tipped me off in the first place that an imminent decline was likely. It will likely take some time before many measures of breadth are able to strengthen to a bullish posture. This is still a negative.
UUWNHI (Unofficial, Unscientific, Working/Not working Hanna Indicator) -- WhatÂ's been working? Shorts! Long-side breakouts are rare and many pullback strategies were steamrolled with the recent relentless selling. The easiest way to play the market right now seems to be shorting into bounces.
Overall I believe the market has now entered a corrective phase. The negatives IÂ'm seeing are unlikely to reverse in short order. I feel there will be more downside to come before the market bottoms and a new bull rally begins. I am now trading in bear-market mode.
As a quick follow-up on the ETF trades I mentioned in my last couple of columns, all positions are now closed. About 60% of them were sold when the market bounced last Thursday, and the remaining near the close on Friday. Overall, these trades were losers, but by limiting my exposure, methodically continuing to scale in, and selling once the bounce occurred even though I wasnÂ't back to breakeven, the losses ended up very small. ItÂ's about making money when you are right, and keeping losses small when you arenÂ't. IÂ'll talk more about these trades in upcoming columns, since I believe there is a lot that can be learned from them. |
