Securities Research Services

Sunday, August 24, 2008

Bulls Looking to Regain Control

Short sellers were able to take the SPY below its near term uptrend last Monday. Following prices consolidated in a sideways move that lasted for 3 days. It looked as if the market was headed for a quick washout move back to this year’s lows. On Friday, however, this consolidation range broke to the upside instead of breaking down and Monday’s breakdown is now looking more like a failed move than it is an eerie omen of lower prices to come.

Friday’s move puts heavy emphasis on the fact that it is important to trade what you see and be prepared for anything while not anticipating anything.

Getting short was the right thing to do following the breakdown, but now that we appear to have a failed breakdown it is equally important to not fight the market by tightening up stops on short positions.

It’s probably early to start getting overly bullish on the market as the indices still have a lot of healing to do, but signs as of Friday are encouraging for the building of a bullish case as we move into the Fall.

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