Those who follow the markets closely have heard the expression countless times “the market takes the escalator on the way up and the elevator on the way down”.  This simply means that markets tend to go down in price a lot more quickly than they go up.

Today the SPY eliminated three days of gains in one massive down day.  What started out as a small gap down on a bad economic number turned into the largest and most steady downtrend day we have seen since last summer.  Generally,  a down day with this type  of volume foreshadows lower prices in the market overall.

After the prior week’s trading action I was becoming very constructive on the market trading to higher prices. We had failed to break to the downside on numerous occasions despite very bearish price action and bad macro news.  There was a MASSIVE buy program into yesterday’s close that pushed us up to 135 on the SPY.  Apparently someone paid the top.  What a rip!

My positive view of the market was a distant memory by 12:30PM today as we had already taken out the prior two days’ support levels.  As a short term trader I HAVE to be mentally flexible.  As I broadcast my show on StockTwits.tv I talked about various shorting opportunities.  The day was only half over and there were certainly a lot of more money to be made on the short side.

As the market traded down 2% from its intraday high I instructed one of our traders to cover a large amount of shorts as the risk/reward from a short term perspective was no longer on our side.  We closed right at last week’s support area on the SPY at 131.80.  The probability of a break to the downside is higher now than it was last week.  I am hoping for a spike tomorrow morning to around 132.80 to re-establish some shorts and then next stop would be 130.80, which was the overnight low last Tuesday.