Last night i was in a mental battle of uncertainty as whether to open up some short positions as i ran my short filter and found some possible candidates. Though looking at the technicals on the index’s they were sitting on heavy support levels and the Nasdaq was already on its 7th day strait of declines. The risk/reward seemed evident that it was too risky to go short in this oversold market.  I was expecting to see a rebound to resistance levels which would give us an opportunity to take profits on our longs and pick up some short positions. Such as looking at the Nasdaq Double top breakdown on the intraday on the 60m chart, I was expecting to see a short term bounce to retest the neckline near 2550 and then a continuation. It was around 2.5 hours before the close and i was done watching the markets as they seemed fairly stable so i got up from the computer and began dozing off watching CNBC thinking we are stabilizing this support level and price would rally into the week to a resistance level. I wake up near the close to hear them talking about the DOW declining 200 points! So much for picking up shorts at a discount eh? Looking at this Nasdaq Chart we can clearly see the bears are in control with the 8th strait drop. The Record for consecutive Declines in the Nasdaq was 16 in 1984.

The DOW:
Looking at the Dow’s daily chart there was a major support breach today which either sent the market into full on bearish mode, or there is the possibility of this being a bear trap being that the market is so oversold. A bear trap is when a major support level is breached yet turns  into a false breakdown. Price action then proceeds to increase on the long side at a significant rate. Technically speaking this definitely possible but economically with unemployment rates up and negative rumors about Country Wide’s (CFC) bankruptcy has dawned a lot of bearish sentiment. Not to mention the recession rumors. Overall theres not much of a long case. With this technical breakdown in the Dow it appears that there is over 600 points for possible continuation on the bear side before the next support level.

The S&P 500:
The S&P 500 has a very similar pattern to the Dow with its broken horizontal support level though has support levels coming up much closer than the DOW or Nasdaq.  Looking at the 5 year weekly chart we can see that ascending resistance levels are coming up soon around 1350 where price should hold if this is to sustain an overall bullish trend.

I’ll run my short filter this afternoon and see what pops up. I feel having at least a couple strong looking shorts in the portfolio would be proper diversification.