There are many words that could be used to describe the current market, but I think one would have to be mentally deranged to use "healthy" as one of them. It has been a multi-month jerkfest, and today encapsulates that quite nicely.
I awoke to an ES that was down 25 points. However, thanks to rumors of the 1,839,398th "bailout" of the Euro, many major equity indexes actually closed in the green. I greeted the rally with a form of relief, since I had trimmed my shorts earlier in the day and was getting ready to kick myself extensively. The big irony of the day was that my best cash-maker was a QQQ long position.
I'm typing this on Monday evening, and looking at the minute-bar chart of the ES, the late-day mega-rally might be offering the umpteenth shorting setup in this insane market (late-night/early morning news from Europe notwithstanding).
I am certain of very few things in the market, but there is one thing of which I am almost certain – – that the lows of August 8th will be taken out this year, and most probably within the next 4 weeks. There's even a remote – very remote! – chance that it'll happen this week, although something astonishing would need to happen for that to transpire.
Given that "near-certainty", I remain comfortable shorting, although keeping simple, nimble long positions is still important as a defense mechanism in my own trading. For me, it's agonizing for these stupid little "bailouts" to keep happening. I want to scream at the world, "For GOD'S sake, just leave the market alone so it can get the selloff over with! Let things flush out!" But, of course, the politicos are never going to let that happen, so we have to keep dealing with an ungodly-manipulated market (again, with today as a stellar example).
Regular readers may recall how I used to watch the GDX as much as the ES to keep a pulse on market direction. I have, for now, kicked GDX to the curb and have USO in its place, since I think crude oil is actually far more important for getting a sense of market direction these days. Like I wrote in an earlier post today, crude oil needs to break its supporting trendline in order for the real fun to begin.
In sum, I think if we see that trendline in crude oil broken, the Dow is going to lose about a thousand points before the selling is over. Whether we get yet another "bailout bounce" in the meantime is impossible to predict.