Prices Bleed Off In Complacent Environment

Volume dried up as the SPY ran back into its falling 50-day average spurring us to close our long positions and advise members to start putting short positions back on. Indeed, the market turned into the type of slow drip lower where prices bled out the previous week's gains drip by drip.

When market's panic and sell off on heavy volume, it tends to attract contrarian buyers who note the spike in fear as potential for some type of price reversal. More recently, the Fed has been extremely sensitive to the market's moves and each panic has been met with another dramatic rate cut that has frustrated short holders who were otherwise right about the market's direction.

What we are seeing here, however, is the type of market that wears out the longs. It's the type of trading that allows recent buyers to hold and hope for some type of reversal. Generally you can expect the slow bleed lower to end in some sort of panic wash out event which occurs when late buyers finally give up and sell right before prices reverse once again.

Probabilities remain with the sellers as we start out the week. Nevertheless, it is important to not remain married to an opinion. Keeping a stop over Friday's low is probably a prudent measure to take in case this market decides to for whatever reason, reverse on a dime.

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Outlook:

While prices followed through lower last week, it is getting a bit late to short new positions.