The OptionInvestor.com Swing Trade Model is currently short the broader markets and while I look for some type of "sharp" move lower when a relative low is violated to the downside, I'm still seeing the type of buying that has me thinking there's some shorts willing to buy weakness.
For a supply/demand trader like myself, I'm looking for these bears that appear to be propping things up to simply go away, but right now they aren't.
While I'm using this observation as short-term, I'd surely suggest bearish traders that are holding some more substantial gains from the past week be doing the same.
Sure... if the short-covering goes away, then the markets become further vulnerable to the downside, but I've never known a poor man that consistently takes profits, especially when a downside target has been met or exceeded.
I've talked before how some days trading is analogous to the carrot and the juicer, where selling pressure in stocks take place to a low, then a brief rally is experience, then more selling pressure is applied and a more modest rally takes place. This is kind of like shoving a carrot into a juicer, then when the motor begins to lag, pressure is released to let the juicer's motor come back up to speed and then pressure is once again applied.
Bears that are holding some handsome gains might want to think of the trades that they hold as carrots that you've been shoving into the blender. Eventually, your carrot becomes small and if you keep trying to apply more pressure and run out of carrot, you're fingers might just get chopped off. Don't be afraid to take some profits, and perhaps go get another carrot that's a little longer and has a greater degree of downside to potential support, or simply enjoy the fruits of your labor and sit on some cash.
As we approach the final hour of trading, we are starting to see the earlier bullishness in the NASDAQ-100 Index (NDX.X) 810 -0.22% and NASDAQ-100 Index Tracking Stock (AMEX:QQQ) $20.13 -0.09% fade from earlier levels. The Semiconductor Index (SOX.X) 214.37 -0.71% has also edged negative and may begin to weigh on tech-bulls psychology that a "bottom" in tech may not have been found at yesterday's close.
This type of action perhaps "fits" with prior observations made today that bullishness was found due to short covering.
Market history tells us that bottoms aren't found simply from bulls doing all the buying. In fact, market bottoms are most often found when the "smart money" that shorted near the top and all they way down, finally turns and begins closing out trades as "smart money" that shorted the top, is "smart money" that often finds the bottom.
To think that "smart money" does all its shorting at the top and all its buying at the bottom would not be correct. It's a systematic process and disciplined approach that "smart money" uses to systematically reduce risk.