Take a look at the last three days of market action and you will see an Evening Star pattern that just barely confirmed itself today. This pattern typically is of the intermediate term basis so it tends to confirm my outlook for lower prices in here.
The put/call ratio was also on the bearish side today as it appears that the small investor does not think these lower prices will last and they are positioning themselves for a move higher with call options. At the very least, the put call ratio should have been above 1.00 today considering the fact that the market was almost down 1/2 percent, but it closed at .90 which is more relative to an up day then a down day.
While we do have the possibility of a Monday/Tuesday reversal tomorrow, it would appear that it would be a good time to either reduce your equity exposure and for the more aggressive, purchase some in the money SPY put options.
We are getting some fairly strong confirmations that we have entered into a period of selling strength as the prudent course and although the final tally is not in the evidence weighs heavily on the lower prices scenario.
Keep in mind also that we have achieved the 50% retracement level on the S&P 500 of the decline from 1580 to 1260 and if we are in fact still in a bear market, then the next leg down could be a hummer. It is because of this possibility that I have reduced my equity exposure markedly and upon a confirmed stochastics cross on the daily chart I will also be purchasing put options against my equity holdings for portfolio protection.
It is definitely time to stay very close to the market as we are at a very critical juncture that should portend the next 15-20% move one way or the other.
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