Bottom Line: In the Short-term You Have to Bet Long
I could quote various indicators from the simple to arcane, but the bottom line is that the correct bet is to be long the markets right now in the short-term (read 1-5 days). You would have to possess a lot of persuasive evidence that I certainly have not seen to convince me otherwise. Ultimately from all the sources I have read or perused–both quantitative and qualitative, the odds strongly favor a bounce from this point. So what does this mean? It surely does not mean that a bounce must happen, nor does it mean that I will be right. Truthfully any good trader realizes that being wrong is just a part of the game. The amateur is the one that takes a high edge situation and manages to mess it up by creating an alternative and unconventional game plan that defies the historical and logical odds. It makes me chuckle whenever I see people questioning whether “this time is different” etc. Let the talking heads make the bizarre and extreme market predictions that end up making a select few famous in the media and among institutions. These same talking heads will fade away after missing an entire bull market, or calling a bottom way too early at some point down the line. Personally, all I care about is the most reliable estimate of Expected Value. One does not arrive at that from reading arcane tea leaves—an expert arrives at that estimate by looking at the most reliable and unbiased evidence. Right now, the play is simple: risk an amount you can afford to lose that keeps you in the game—too much leverage at this point is not recommended. Look for a good exit, scale out on the way up in chunks if you can’t find a decisive exit point. Try to use a time stop here—a bounce should work within at most 5 days, if it does not you should definitely exit and find a better entry point.