What Next?

November was another bad month. But we had a nice rally after Nov 24. If you look at the chart of S&P index (or of SPY), there is the perfect reverse head and shoulders formation with bottom on Nov 20. And then we had rally. Number of bulls on TV grew up a lot.

This rally might mean that hedgies finished forced selling for the year. Or maybe they just made a pause.

I don't feel that this rally has legs. Three indicators are against it. Number 1: number of bulls on TV (contrarian). Number 2: falling volumes last week (weak indicator, might be related to the holiday). Number 3: S&P is right at the level of October lows, if you don't count Oct 27.

I'm waiting for direction here. If S&P breaks above 950, it might be bullish. To see complete reversal of the bear market, we need a break above 1000, better yet, above 1050. If rally stops here, I probably would go short S&P, either by shorting SPY, or by going long SDS.

Full disclosure: at the time of publication author had no positions in SPY or SDS. Positions can change any time.