On Tuesday we wrote: "Unless the Fed steps in with another surprise rate cut, the market is likely to continue spiraling lower."
Indeed, before the market opened yesterday a Fed board member made public comments that indicated future rate cuts were all but assured. Then later in the day the Fed showed the market that they are aware of risks to the economy here.
This was all the market need to bull doze short positions and rally.
We were caught heavily wrong-footed and suffered stop outs on positions opened the day before.
It's tough to be wrong in the market, but being wrong is a reality and it is how one handles reality that separates the winners from the losers. Winners quickly admit they were wrong and adjust to the changing conditions.
Right now the market is very tricky. Even though short positions were hit hard yesterday there are no guarantees that prices are going to continue to rally to new highs. In fact, the run up over the past two days is very unstable and we are likely to see much, if not most of it retraced before prices move significantly higher.
As we have been saying for weeks now, the broad market is to be avoided here. Focus on shorting rallies in the weak downtrends and focus on buying only in the few strong uptrend that remain. Everything in the middle is just a mixed back that is sure to chop up the trading accounts of those who get sucked in to the false set ups that are prevalent.
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