Excruciating Pain for Bears Suggests a Top is Nigh

by Rick Ackerman

It was so challenging to stay short on Tuesday that the broad averages must surely be at or near an important top. This is an instinctual observation rather than a technical one, but I’m inclined to trust gut feelings based on the evidence. The two charts above illustrate the point. Notice that DIA, an ETF proxy for the Dow Industrials, head-faked on the opening bar to exceed a visually distinctive peak recorded four days earlier. The overshoot was not by much, but it would have sufficed to stop out bears using that peak to set a stop-loss just above it.

Similarly, AAPL mau-maued bears on Tuesday’s opening bar with a gap-up, short-squeeze opening that exceeded the previous day’s closing price by nearly 3%. If that didn’t spook them badly enough, the stock staged a second-wind rally that brought AAPL within striking distance of the earlier high. The stock then fell sharply for the remainder of the day, and for good reason: buying power from short-covering bears had been spent on the two fright-mask run-ups.

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