Welcome to my thread. My primary trading tools are technical analysis and sentiment. Probably more heavily weighted on the sentiment. Here are my current observations:
Friday's action clearly turned more people bearish. VIX is high. The Government just passed a "rescue plan" and we tested 1106 on SPX and closed below it.
Sentiment supports a rally as does the VIX. The long term outlook still looks bearish and bear market rules apply (sell rallies, buy weakness).
The market's reaction to the Rescue Plan was bearish, but it's a very short term reaction and consistent with market behavior. I think too many people were expecting a rally so the market dished out some pain instead. That is not unusual and I'm glad this vote is finally out of the way.
There is still a lot of risk in this market and I don't think that will change for some time. I'm in the camp that says we will be seeing lower prices down the road, but the market does not go straight down. We had a lot of pain last week and a relief rally is a very real possibility. More so as bearish levels rise. Last Friday's action frustrated many traders and dire warnings are increasing on some sites.
I'm looking to sell strength. If we continue to see weakness I'll have to evaluate it quickly, but I'm not going to be taken out of my position easily. I'm willing to endure some pain if it means I finally catch a rally. A rally at this point could be quite explosive with an estimated 3.5 Trillion sitting on the sidelines. Obviously not all of that would come back into the market on a rally, but that's a lot of fuel sitting out there.
It's a very tough call in the short term though. I am down about 3.25% for the year right now (including the surprise decline on Friday). Back in in the Spring I was down as much as 10% during that big downward move, but I held out to allow the market to find its feet. I clawed my way out of that hole to a large extent. I'm always aware of the challenges the trading rules have on my account and I have to take that in to consideration with any trading strategy.
I reentered the market at last Thursday's close going 100% C fund. I've spent most of the last two months in G. I'm expecting weakness in the overseas market's tonight and more selling in our domestic market at the opening bell. Hopefully, after an initial flight to safety most of the weak hands will be shaken loose and the parasites that control this market will finally take it back up. That's my expectation, but until breadth and volume come back to the upside we could see more pain instead.