My biggest problem right now with my analysis is that I don't want the repeated disappointments of the past eight months overly-cloud my thinking with respect to the markets. The disappointments are legion – – Egypt, Libya, the Japanese nuclear disaster….I've really started to lose track of it all – – – which are the instances of the market beginning to break and then rapidly recovering to new highs.
The irony of last week's selloff is that it was based on good news instead of bad. That's actually encouraging. It all began last Sunday with the out-of-the-blue drop in silver futures, and when the OBL killing hit the wires, equities soared, only to give it all up later. And on Thursday when I said to pray for a rally, we got our prayers answered with a rally that, just as I had hoped, almost completely faded by day's end.
If I was forbidden from watching any stock indexes, I could content myself with watching silver all by itself as a signal about when to get really aggressive about shorts again. The charts below – the Euro, gold, oil services, and silver, all are painting the same picture for me: a possible bounce to clearly-defined levels, and then a resumption of the downturn. Just as I had hoped for a rally at the end of last week, I likewise would be delighted to see a nice rally Monday. It would making adding to my shorts much more comfortable.
As it is now, my portfolio is about a 20/80 bull/bear split, with the largest bullish position being UDN (betting on weakness in the US dollar). I am preparing myself to move to a 0/150 split if we can push to the levels suggested below (that is, entirely short, and using margin).