Any Rally In A Bear Market Should Be Guilty Till Proven Innocent

The reason we stay in cash in times of uncertainty and confusion is to avoid days like on Monday. I think this heatmap pretty much sums up what happened Monday when the House failed to pass the rescue plan:

I don’t know about you, but I’d much rather trade after the fact than gamble before a significant market changing event. In this volatile market capital preservation is key. When all the sectors are bloody red, CASH IS KING! Refer to my “Waiting For A Direction” article for more on this.

The S&P 500 is in a classic downtrend but what is different about this chart? Unfortunately with all this government intervention, this market will probably not do what they are “supposed to do”, we aren’t exactly working with a natural market this week, so all the technical analysis should be thrown out the door. Again, there is a lot of confusion in this market right now, if you were reading other blogs last night, you would’ve noticed that everyone had their own opinions about the market. All of this confused me even more, that’s why I decided to wait until today to make a new post.

Remember the 1150 level I mentioned on September 18, 2008? Well we broke that level yesterday, so shouldn’t we be heading lower today? It sure doesn’t look like it! Instead, it looks like the government will be pushing for Plan B this week. I must admit that I did go bargain hunting late yesterday, but even if Plan B goes through, I would be skeptical. As Plan B advances, there will be good opportunities for short-term trades.

Always protect your trades with stop losses and be quick with the trades. Keep a close eye on the markets, if you don’t have time to do this, stay away from the markets. It’s much better to stay on the sidelines than getting stuck on the wrong side of the fence. Remember, in times like these your goal should be capital preservation and ANY RALLY IN A BEAR MARKET SHOULD BE GUILTY TILL PROVEN INNOCENT!

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