Shorts Back Away, Letting Stocks Fall

A few more days like yesterday, and bears could be pardoned for feeling a little cocky.  By simply keeping their cool Sunday night, they left DaBoyz with precious little buying power when stocks began to trade Monday morning. The result was a 200-point decline to start the week. That’s even worse than last Monday’s step-step-stumble out of the gate, which primed the Dow Industrials for a 187-point decline that day. The mood on Wall Street has definitely changed, and nowhere is this more evident than in the failure of the world-class predators who work the Sunday-night shift to spook those who went home short on Friday into covering. Actually, Friday itself had been a bust, since even at the apogee of the head-fake that played out in the opening hour, buyers couldn’t push the broad averages above even a single prior peak on the hourly charts.

As we like to point out, merely bullish buying can almost never create headline rallies; rather, it takes the kind of urgent buying that only shorts who have gotten caught in the ringer can provide. While it is true that legit, die-hard bulls lend moderate buoyancy to the markets at all times, it is only desperate bears on margin calls who can  punch through supply zones and create opening-hour gaps in places where sellers might otherwise have been more aggressive about profit-taking. Bottom line: Bull markets (and bear rallies such as the one we’ve been in since early March) owe far more to skeptics, doubters and permabears than to business-show shills who are constantly talking up the market.

A Tough Week Ahead…

So where do we see stocks headed this week? For starters, the E-Mini S&P looks likely to fall an additional 20 points, at least, when stocks start to trade again Tuesday morning. The electronic futures contract ended the day at 888.50, but it looks bound for a minimum 869.50. The equivalent target for the Dow Industrials, which settled at 8339, is 8200.  Both of those numbers are precise Hidden Pivot supports, but if they are exceeded even slightly we’d infer that there is more, and possibly considerable, selling power remaining to be spent. So let the buyer beware. (If you’d like to have Rick’s Picks commentary delivered free each day to your e-mail box, click here.)

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