Our proprietary market direction model switched to short after the July 5th rally because many of the technical indicators the system follows went into overbought territory.
Based on a few more rules we abide by at Hedgephone, we would suggest covering a portion (if not all) of your short position today, Tuesday, on weakness because of the recent pattern of markets bottoming out on Tuesdays and producing annoying “snap-back” rallies which are short-lived and based on short covering.
Much of the buy on Tuesday theory works right now because it coincides with another well known stock market theory devised by famed commodity trader W.D. Gann — “Never be short on the third day of a correction.” For whatever reason, Gann believed that the third day of any market sell off was a bad time to be short as skilled traders will be covering and going long for a rebound rally.
What really matters most to us at Hedgephone is what the FED will be doing to combat falling stock prices (their new unstated policy objective) and what traders like you can do to prepare for what is ABOUT to happen as opposed to reacting to what JUST happened in the stock market.
Because the short trade we advised entering on the 5th is now a 2.3% or so winner, wise traders may want to take the money and sit around in cash for a day or so until we get some more clarity on Europe, Bernanke, etc…
Overall, the market is a lousy place to put your money nowadays because corporate insiders, CEO’s, directors, and unions have completely corrupted the U.S. market and most of the international equity markets. Today, what you should think of is a cesspool of standing water where flies and mosquitos are hatching like crazy. Sure, you have the American Dream burning inside you and you are thirsty, but you may want to boil that standing water before you risk drinking it! Fraud by corporate insiders is so rampant that it may be worth sitting it out.