Monday, February 22, 2010

Here Comes Capitulation (Maybe)

The bulls finally seem to have their act together for the big squeeze. The small caps (IWM 6 month daily above) should easily make it back to the high at $65 from January and a break of that level should initiate some serious panic buying. I have been skeptical of the recent bearishness because my gut tells me that no major move, i.e. the bull market of the past year, ends without capitulation. While there are plenty of good reasons for the recent bearishness in the markets, the fact is, the charts don't show any obvious top pattern. As I've mentioned before, I'd like to see a few short crushing up days, maybe +5% or more on the indexes, with massive volume, say IWM trades more than 100M shares, at the top. Following such a move I'd look for a sharp reversal, this is the ideal time to short and this is what I'll be waiting for. That being said, this is a bullish looking chart to me on a daily time frame.

In the mean time I will remain long and short (hedged). Shorter in the long term, longer in the short term. =)

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