Tuesday, August 02, 2011

Time to re-assess

We have written for months that we would buy the dip until we broke the 2009 trend-line.   Well, today we broke the 2009 trend-line.  Our last support idea was a break of 2009 trend-line and overshoot to 50SMA weekly, which worked well for a small day-trade today.  However, the lack of buying on THE break of the big 2 year bull-market and 50SMA on weekly is without a doubt a red flag.     Today is day 1 of the break.   Head-fake is still an option and definitely on the table — the tale will be told not by just today’s action but by the next few days.
Our biggest focus now is whether dip-buying mentality has changed.  If today is any indication then yes, indeed, dip buying has changed dramatically.  But again, one day not enough to make a judgment and we’ll see how the rest of the week plays out.
For our trading we’re back to more defensive trading.     If this is just a head-fake then we’re fine with missing any bottom and playing it safe.   Our plan all along has been reversion to mean trades against the trend-line.  Today we lost that strategy edge and again, as per the plan, we’re stepping back.

Clean break of $IYT two year trend-line.   If it’s a head-fake, great, but we’ll wait and pay higher prices on long set-ups than buy the blood on a clear break.