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Short the Market, A little Ahead of the Move

May 17 2009

Short the Market, A little Ahead of the Move

With the markets topping out this week and breaking through resistance on two separate days during the past five trading days, I moved from a cash position to a 50% short position. This could possibly be a little ahead of the move downward as most indicators are still neutral to positive. The vehicle that I am using for the short position is the Proshares Ultrashort S&P 500 (SDS). This is the opposite ETF of the one I held a position in during the recent market rally, the Proshares Ultra S&P 500 (SSO).

Why Long to Short

Two weeks ago the markets stopping making new highs and new higher lows and starting to make lower lows. This was the first sign the rally was stalling. The NASDAQ was performing worse than the other major indexes and showed the first signs of stress. When the S&P 500 broke through $902 to the downside, that was the signal for me to close out my long positions as the market top was in. Then on Friday the market broke through resistance at $883 reaching $879 intra-day. This was enough of a break down to begin building a short position and I purchased SDS shares.

Short Too Soon

In retrospect, the market isn't in a position to be fully shorted and I may be slightly ahead of the move lower. The NASDAQ and The Russell 2000 have both given hold signals but the Dow Jones Industrial and the Standard and Poors 500 are both positive at this time. In addition, the SSO has not signaled a change from it's positive position and the SDS has yet to make a decent enough move to signal any kind of strength. Another strong selling day this week with a 2% loss on the S&P without a similar move to the upside should provide more reason to continue to build a short market position.

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