There is nothing that I have seen as I write to indicate that the market will next trade lower. Nothing. The market is an uptrend. WFC, GS, IBM, APPL, RIMM are leading the way. SPY finished near its high into the Close. There was old school buying into the close in WFC, the bids would not drop and continually stepped higher. SPY’s high was 93.21. There is no reason, there has been no reason, but to trade with a long bias as a short term trader.

Now having said all of that, I may walk into my office at 417 5th Avenue on Monday and short everything.  I have no idea what news may break overnight or whether the market will start to show me weakness. And there is not a lot of time till Monday AM.  As a trader I am mentally agile.  But I do know that I have no information to suggest that the market will trade lower. And I do know if the market starts to show me its weakness then I will get short.

But I need to let the market show me its weakness. As Damien pointed out in his post I want to see the market leaders make lower highs. I want to see the SPY, XLF, QQQQ break their uptrends.  Great post Damien.  For us on Friday 92.80 was an important level in SPY. When this level broke we put on some short term shorts. For us SPY below 92.80 was the market showing us weakness. I was short WFC. But WFC would not trade lower. And SPY didn’t trade much below 92.60.

The buying in WFC was impressive. WFC would just not trade lower.  Even with GMan screaming at WFC, “Break already.  But the stock lower you chump.”  Even when SPY broke the 92.80 level the down move in WFC was just not there. So we covered. We recognized that what we thought was a signal of weakness was just temporary. The market was now not showing us that the financials were weak. The market was now not showing us that it was weak as its downmove below 92.80 was shallow.

The key for us it to see the weakness. We need to see the selling. I am not going to develop some dopey theory about when the market will reverse. Amir posted, “I don’t try to predict major reversals.” I agree. But if the market shows me the selling, if important intraday levels in SPY, XLF are broken then and only then will I short.

Now not all of us trade in the same time interval. So what I look for with my trading may not be something that will work for you. But our thought process must be the same. At these levels, with this market, we must start to think about what gets us short. We must be prepared. For me it will be when the market shows me its weakness. What will get you short?

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