Summary: Continue to maintain a LONG/HOLD position.
So far, the stock market is acting just as anticipated. In my earlier post Little Known Way To Profit From The US Government Shutdown Default Scare I have suggested that traders should set themselves up for a fast moving rally that is surely to come due to some sort of a government shutdown deal. Today we got that rally.
With all of the major indexes up over 2%, a large portion of this move is now complete. As I have mentioned before, the market left a lot of gaps on the way down that it must close if we are to anticipate a prolonged bear market decline. If the government shutdown resolution materializes over the next few days I would expect the market to continue going up into the DOW 15500 range. Then pause and possibly reverse itself for good.
The long term picture remains exciting. While I continue to maintain a LONG HOLD position for the time being, I believe the market is in final stages of setting itself up for beginning of a 2-3 year bear market. We are still waiting for a confirmations here, but things are looking good. Once the market tops here (assuming it won’t go over 15,700) we should start the bear leg. Triple tops are notorious for ending bull markets.
A little secret for you here. Multiple tops are caused by various cycles hitting at different times. Each top means that the cycle has already reversed itself and is not pointing down. Once the major trend shifts it will be a powerful move down.
For now we wait while maintaining our long position.
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I really enjoy your blog and as a small time trader appreciate your honest insight, I too believe the market is going in a bear market starting next year as you do, how would you play the decline, I have been racking my brain and have come up with a few options, the Russell 2000 always usually the first to decline is my scenario and won’t have to deal with dividend holders that will just hold out and at it’s all time high is best way I can come up with, with long term puts or short IWM is my best scenario so far, what’s your insight
Hi Greg,
Thanks for your comment and liking my blog. Yeah, you basically have to be short one way or another to make money here. I think you are going about it in the right way. I would just wait for a technical confirmation that the bear has started before shorting. My timing work shows that we will either start soon (next 4 weeks) or around March 2013. Also, please be aware that this bear move is unlikely to be similar to the sharp move we saw in 2007-2009, most likely it will be a general trend down over the next 2-3 years with lots of ups and downs. As such, a lot of patience (or trading in and out) is needed to be short. I hope this help. Please let me know if you have any other questions.