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The Reason Why I Haven't Bought a Single Stock in 2 Days

October 16, 2012 – Comments (1)

You'll notice that I haven't been very active on the buy side so far this week, and that's not by accident, but by predetermined choice. When the market was declining last week, I was gradually adding positions to the portfolio such as AAPL, AET, GWW, LMCA, HAL. For the most part these positions held their own, but I was adding them, because the market was still in a confirmed uptrend, so the idea was to take the weakness as a buying opportunity. 

But then Friday rolled around, and we broke through the key resistance level at 1430, and the market suddenly became bleaker. We confirmed a double-top pattern in the S&P and the uptrend off of the 6/4 lows that we had been riding up on had  been broken. At that point I had somewhere to the tune of 6-8 long positions and two shorts. 

So wouldn't I want to sell everything and go short now?

No. Though the bias is to the downside now, the market doesn't always work that easy. We were incredibly oversold short-term, and when the market makes something too obvious, it is usually wrong. And that was my suspicion. That the bears had jumped in on Friday, and made themselves way to vulnerable to a short squeeze this week. The market, particularly when it is heading lower, likes nothing more than to inflict mass casualties on as many participants as possible both bears and bulls, and Monday and today gave us that max-pain scenario, where bulls had the weekend to fret about it and the bears to salivate over it. 

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