Bear Flag City

And just like that 400 basis points of alpha evaporates before they can even ring the opening bell.  Here in lies the rub of going to cash during times of market volatility, but I would rather sit it out and let the market whip around wildly without me, instead of playing in a market where I don’t have an edge.  Right now, trading on anything more than a 2 minute chart is pretty much gambling.

You haven’t seen much idea flow from me lately here or on the StockTwits stream, largely because there isn’t much idea flow coming from my head.  I share greater than 80% of my ideas here or on the stream, so you can get a pretty good idea of what I’m thinking, and right now, the cupboard is pretty bare.  I’ve got a few ideas floating around, but little conviction, and when money is on the line, you better damn well have conviction or this market will steal your money in the blink of an eye.

While I sit it out and wait for more clues, here’s my crystal ball view on what’s going to take place.  The market is going to chop around in a relatively narrow range until late in the week, late Thursday into Friday.  At that point in time you’ll start to see many charts finding major resistance at the underside of their declining 20 and 50 day moving averages.  Bear flags will be pervasive throughout the market.  The key to watch is a continuation of today’s low volume no conviction action.  The longer the bulls don’t strike and take this market higher squeezing any shorts that are still left after today’s gap up, the better chance the shorts have to strike once they sense that the market is out of ammo.

I might even take a few quick shorts if I see this play out and the market rolls over on Friday, I think we could see a quick high volume move to the downside.  I’m looking to short Europe via $IEV, the Spanish ETF $EWP, the Italian ETF $EWI, Spanish banks Banco Sntndr $STD and Banco Bibao $BBVA.  Those are my best targets.

On the long side, I like two low risk education stocks right here off of their 200 day moving averages.  Devry $DV and Lincoln Education $LINC both set up well long term and have low correlations to the overall market which in this environment is very nice.  Other biotech names still set up very well if they can make it another week without falling flat on their faces.

For now, I’ll sit in cash, wait out the insanity, and work on diving deeper into some fundamentals and macro trends.

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