Bearish Again

On March 15th 2011 I put up a blog post on my bearish views.

And on April 7th 2011, in my blog “Trading Failure“, I said I was wrong and I lost just under 1% of my trading capital on my bearish trades.

Now however I am bearish again, with a lot more conviction than before. Here are my reasons:

1. Martin Zweig’s fantastic 4% model has again signalled -4% which is a sell signal on stocks (note that I calculate his model daily not weekly).

2. We have recently had new 20 day lows on Dow Futures, S&P500 Futures and NASDAQ futures. A new 20 day low is a signal I have found to be significant.

3. Elliot Wave International today reminded me today that:

“When the major stock indexes stand at or near a long-term high, mutual fund cash levels are low.
By way of example, the long-term [equity market] peaks in 1937, 1966, 2000 and 2007 have an average cash-to-assets ratio of 4.18%.”

The CURRENT ratio is 3.4% which is the lowest reading EVER!

4. The Traders’ Almanac has a terrific MACD Timing system for going long equities for part of the year and flat/short the other part of the year. That system has now signalled flat/short.

So I am now bearish and looking for opportunities and places to take short trades.

The S&P500 and the Dow are especially weak.

A break of 12,000 in the Dow Futures will get me looking seriously at a short trade on Dow Futures.

In the meantime I have found a trade I like. CAD Yen is a good proxy for the equity indexes (i.e. highly correlated) and I like the fact that it has broken the key support/resistance level of 82.28.

I have gone short CAD Yen today with my stop at 82.67, but I am looking for opportunities to get short the indexes as well.

 

Happy Trading

Oli Hille

Author

“Creating the Perfect Trade”

www.TradingBook.net

 

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