Bulls Running Out of Steam

by Rick Ackerman

Bulls showed no pluck on Wednesday, so we shouldn’t be surprised if they let the reins go slack ahead of the weekend. Given the tempo of truly appalling news and the possibility that something horribly destabilizing could occur between Friday and Monday, a trader would have to be crazy to load up on stocks right now. Should he therefore take the other side of bet? Thursday’s price action should give us an answer. If the market meanders sideways, that would make put options look like a juicy bet. Since it is not Mr Market’s habit of serving up juicy bets, what else might we look for? A sharp rally to spook bears would vex most traders, but there does not seem to be sufficient buying power to accomplish this right now. The third alternative, a nasty selloff, might be just the ticket, since it would have the paradoxical effect of scaring away shorts who have been whacked too many times by dip-buying maniacs. If there is in fact a sharp move lower over the next two days, and a short-covering rally to end each session, both of the rallies are likely to be opportune sales.

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