We were a bit early on our call that a short term low had been put into place, as there was the outside shot of one last push to new lows for the move, which was satisfied today. Being early on a risky long call in a bear market is just simply proof once again that it is no feat for the faint of heart to put a bullish position into place in the midst of a bear market.
This is where we stand yet again, as the chart clearly dictates that there are strong signs that this leg lower on a very small time frame has completed and we should see some type of counter trend rally, perhaps into the 1385 to 1398 area on the S&P 500 cash index.
However, as was the case with the last potential bottom, these counter trend trades on the long side are really only for the more experienced trader and should be left on the table by the novice and even the intermediate skilled trader. The novice short term trader should be looking to sell strength which means that if in fact we do see this counter trend rally, the novice trader will look to sell it short playing the trend and leaving the counter moves to the experienced.
On the intermediate term front, we remain in a bear market and each progressive counter trend rally should get smaller and shorter in duration as we work our way lower to the final destination of a bear market low. In the meantime, intermediate and long term traders should stick to our very conservative equity allocation of no more than 35% into stocks and the remaining in cash and bonds.