Everywhere a Sign

All the signs of a market high were in place. The Volatility Index (VIX) was telling of extreme complacency, the Arms Index was overbought, trading ranges were small, volume was unimpressive, what little volume there was came in more heavily on declines, and the markets repeatedly refused to decisively go above the highs made over the three previous weeks in response to Federal Reserve action. So the drop of the last two days should not have been a surprise to any technicians. Of course, the fundamentalists continued to find reasons to reject the ominous signals.

Is this for real? The drop took the S&P 500 to exactly the lows of the consolidation. A break below 1425-1430, as shown on chart one, would be a signal to go heavily to the short side. A bounce from that level is likely, but is also likely to be short-lived. I am inclined to hold shorts, move stops in close, and be prepared to add to shorts if the support fails....335 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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