Sentiment and breadth have reached such extreme levels that even if the market has resumed the secular bear trend we are probably due for a strong counter trend move.
You can see from the following chart the number of stocks trading above the 50 day moving average has reached such depressed levels that even in the last bear market these kind of skewed levels have led to sharp rallies.
Now I'm not saying we are in a bear market yet. For me to go that far I would need to see the pattern of higher highs and higher lows broken. That just hasn't happened yet.
We also didn't get a Dow Theory non-conformation at the recent April top. That tends to happen at the majority of major bull market tops. And we certainly don't have a Dow Theory sell signal yet.
That can't happen until the market puts in a secondary low and then that low is broken by BOTH the industrials and transports.
The market is in the process of putting in the secondary low right now. We would need to see the rally out of the impending bottom fail and both averages break to new lows before a sell signal could be issued.
However as I've pointed out a move below the February yearly cycle low would be a big negative and would push the odds in favor of the market breaking below the now due secondary low.
But as of this moment there's no sense in doubling down on the short side into these kind of oversold levels. Even if the market is rolling over again we should see a bounce.
A safer strategy would be to sell into the rally.
However as long as there is a bull market still intact I consider it a waste of time and capital trying to fight with a bear market. Let's face it the second greatest bear market in history only racked up a 58% decline and the odds aren't good that anyone managed to rack up anything even close to that during the volatile bear.
If someone managed to catch even 75% of the move they were doing great. However in less than half the time it took the bear to run its course mining stocks quadrupled or more those kind of gains.
The mathematics of the short side prevent one from making the big money. The reality is that the most one can make on the short side is 100% and even that isn't possible if you are shorting the indexes.
The potential in a secular bull market is typically many multiples of that. Most big bulls tend to move 2000% or more from beginning to end. Realistically one isn't going to get rich on the short side. They may get an ulcer trying to wrestle with the bear and the Fed but they won't get rich.
Those who can ignore the daily wiggles and ride the bull will get rich and a big plus is Ben will do everything he can to help you has he tries to fight the bear.