Don't buy yet, WE MEAN IT!

We consider this post to be very important to all of our readers. We have been preaching that traders should adopt a cautious stance due to the market exhibiting poor internals. Today offered confirmation that the market is in trouble. The volume was substantial for a summer day of NAZZ 1.87b and NYSE at 1.67b. The Dow dropped 125 points and the NAZZ dropped 28 points from their highs respectively. The action in the indices can only be described as a negative reversal with distribution. In addition the downtrend was confirmed when we breached the NAZZ lows from this past Monday.

We are in a vacuum of news flow for the next several weeks. Once a market establishes a trend within a vacuum it is very hard to reverse course. There are also lots of profits to protect. We have also preached in prior posts that the low volatility in the market causes trends to be more relentless than anyone would expect. This does not necessarily mean the market will go into freefall. In fact, that would be preferable for a washout. Instead the market may persist in a slow steady downtrend that ultimately brings us to much lower levels than a sharp Cliff would bring (more on Cliff later).

It's not that the fundamentals are bad, it's just that a clear downtrend has emerged and needs to be respected. Bullish traders should step aside and welcome this looming action. We expect ultimately this will provide an excellent opportunity to get long the most sustainable rally that we have seen in 5 years. Being properly positioned for that event is very important. Cash is King for now.

We are not suggesting that you should be completely out of the market at this time. In fact we continue to have one arm (approximately 25%) in the market ourselves. Although we do think that a large cash position is very strategic at this point in time. If we are wrong and this market turns up in the near-term we will scrutinize the internals i.e. leadership, volume, breadth, and news flow. Only if they meaningfully impress us will we get on board the long-side train.

If You Held A Taser To Our Head: We would glue our hands to the bottom of our chair and sit on them before we get aggressive to the long-side at this time.

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