Market Turns Down Again, But Shorts Should Remain Cautious

We would remain mostly in cash here. Oils and some big cap tech offer compelling short set ups, but potential for whipsaws and short squeezes remain high; especially in the financial and builders sectors, which benefit from recent rate cuts.

Explanation:

Long term, the market is in a confirmed downtrend.

The near term trend turned lower once again yesterday. However, note that sentiment has once again moved into the overly bearish area. Likewise, volume was not spectacular so shorts that press may end up getting squeezed on a mid day reversal again.

There are some areas that offer decent short set ups, but we recommend keeping position sizes small and be ready to exit quickly if prices once again find support.

Outlook:

Prices may test recent lows; especially in tech. However, we continue to look for a rebound rally back up to the 40- and 50-week averages at some point over the next few weeks. Until prices regress back to their mean, risk of whip saw will remain high and position sizes should be kept small.