The Second Shoe is Ready to Drop
This market has serially lacked follow through to the point that it is an expected pattern of behavior. Traders have witnessed indices revert to a tight range of support and resistance and their trades have gone on autopilot, blindly buying support and selling at resistance. No breakouts and no break downs. Earlier this month this changed and we had a deep sell off below major support levels on all major indices. Since the 15th of the month however the indices and most stocks have reverted to a trading range. This has tempted many to believe that the market has reverted back to the norm and has led to a false sense of security. After today though there is little doubt left that a character change has taken place and that the new norm is that of volatility and trend as range trading is put on the shelf for a while. Indices had spent the last 6 or 7 trading days working off their near term oversold conditions on decreasing volume. Then today we saw a serious failure as indices tested major resistance. There is now a very strong chance that we will see another sharp leg down from these levels. If you have not positioned yourself on the short side we at least recommend moving to cash. Some sectors may withstand the heat better than others but cash or the short side is king for the next 5-10 days.