• The Nasdaq 100 has rallied a bit during the trading session to break above the 11,800 level, showing signs of life.
• At this point, the market looks as if it is ready to go higher, perhaps reaching towards the 12,000 level, an area that is a large, round, psychologically significant figure, and an area where we had seen both support and resistance previously.
• Because of this, it’s very likely that we will continue to see that area as important.

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The market will more likely than not continue to find reasons to go higher in the short-term, but longer term we are still very much in a downtrend. With that, I’m looking for an opportunity to short this market on signs of exhaustion, because I think you have much more downward pressure over the longer term than anything else. Yes, this has been a nice bear market rally, but I think it is simply a bear market rally. Bear market rallies tend to be nasty and tend to rip the faces off almost everybody. It does not change anything over the longer term.

Waiting for the Federal Reserve

The 200-Day EMA hangs around the 12,600 level and is dropping from here. Because of this, I think somewhere between here and there we will get the correct exhaustion candle to start shorting. I don’t necessarily want to chase this market out there, although short-term traders will more likely than not continue to chase the trade. There’s also probably a significant amount of short covering going on, and that of course has a major influence on the market.

At this point, we may have a little bit further to go to the upside, but I also recognize that the longer-term trend still favors the overall downward pressure. I think a little bit of patience will go a long way in this market, and thereby give you an opportunity to make much bigger trades instead of trying to chase the short-term momentum in this market. The last couple candlesticks have been very bullish, but we still must worry about whether the Federal Reserve is going to tighten everything. I do think they will, mainly because that’s exactly what they have been saying for a while. The Federal Reserve caused this mess about people believing they are going to bail everybody out, so it’s their problem to fix.

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