The short term picture has become quite muddled with the action Friday really throwing some indecision into the scenario.
If the strong opening we saw in the morning was able to hold and actually push a bit higher, then things would be a bit clearer, but this was not the case.
This was exactly my thinking when I only began to allocate back into equities in very small steps and currently I have only a 1/3 exposure to stocks.
So here is the short and sweet of what is currently on the board.
We must be prepared to quickly pare back our equity exposure should we see any type of rapid deterioration in the market and there is a fairly high probability of lower prices in the very short term. How low will depend upon many things, but now it appears that we must remain cautious about stock prices. This will entail scaling back not only the short term equity trading account, but the high risk 20% in 7 days portfolio as well.
It is at times of indecision that the best course of action is to remain very lightly exposed to equities until the picture begins to get a little clearer.
In order for the market to continue to rally, it will have to overcome the very high probability pattern on the stochastics and this will not be an easy task. So stay very conservative here until we get a clear signal either way.
Monday will bring very light trading and many times these markets are very easily manipulated by the locals, so if you decide to day trade the market Monday I urge you to remember the potential volatility and keep your stops tighter than usual to protect against thin run away markets.
I hope you all are having a great holiday season and lets all look forward to a healthy and profitable 2008!
Please take a look at the chart below as it really sets the tone for what is currently happening in stocks.