Favoring the Short side if....and Market overview for April 7 and 8

It has been a very choppy week and very difficult to get a sense on the direction this market will take. It seems that 'all news' is out regarding banks, TARP, TALF, GM, bailouts, etc. The question is has all the 'bad' news been priced in?

With this impressive move the last four weeks, it definitely feels a lot like last Apr/May when the market got quickly ahead of itself and the rest is history. Earnings will be key, especially banks and financials. Already we are hearing about BAC requiring some odd $36B additional capital, and the results of the banks stress tests will not be released until after earnings - this can't be good. But the market seems to be taking these news in stride, so we'll see what happens.

Since I did not post yesterday, I wanted to include my signals for the last two days. Yesterday, my first trade was a short in SPY on the expectation we would continue the gap down. I was stopped out and eventually got a couple of signals after that which were good for good 50c - 70c scalps.

Today, I started the day with a short in SDS and a long in POT which reversed nicely after the earnings news by MOS and the trade was good for 50c and 70c scalps. It continued on to for at least $1-$2 additional gains - but I closed the trade when I got a signal to go short SPY. I had a couple of other signals which were good for 70c and $1 scalps on SDS.



Going forward, I am attaching a daily chart of SPY. I still feel we are in a critical trading range here which has not been resolved. I mentioned on twitter that I have a sell signal on SPY which will be triggered on a close below Tuesday's lows of 83.51. It also happens to be a break below the lower trend line shown on the chart. The last couple times I got this signal was around Feb 10, Jan 7 and Sep 3, 08, which marked the begining of a severe correction each time. Will the same thing happen? I don't know - but we will soon find out.

A break above 84 on the SPY invalidates this setup and it may mean that this rally is real and time to get on board for LONG positions.

Either way, we will be ready for what the market brings.

If I don't post tomorrow, have a great weekend, and good luck with your trading.