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The Stock Market Uncertainty Will End

Mike Swanson
By Mike Swanson / September 7, 2010

None of these markets look like they are in a position to continue this current rally for weeks on end. The market does not not look like it did in July 2009. The sectors that make it up are too beat up overall to just blast off for the rest of the year.

The current rally could end at any moment, so buying into it at this point would be completely foolhardy. When the July rally peaked in August the market immediately took a nose dive practically overnight. This is what happens in bear markets. You get fast rallies that excite everyone, but then suddenly come to an end in a vicious trap.

The bullish scenario though for the market would be if it pulls back a bit after this current move and then simply goes sideways for 2-5 weeks and trades in an even narrower range. This would put it in a position where it would recharge itself and then start a rally sometime in October back up to its April highs. This would make the overall market look like it is bullish and starting a big bull leg up that would last into the end of the year.

However, if the bulls are right then any pullback after this current move up ends should be very short-lived. The market should not retrace no more than half of its gains and at this point should not revisit its August lows.

At this point those lows are that critical. If the market gets to its August lows over the next 1-6 weeks then I believe that it is simply going to go through them and start a vicious full blown stage four decline.

So if you are uncertain about the market at this point all you need to do is take action if the market averages get to their August lows. If this happens you should sell and take head. You should raise as much cash in your account as possible.

If you are bearish then you should do this now and if you want to be aggressive you should be short or look to short the current move in the market.

If the bears are right then this should be the last rally before the market turns down and falls apart. If the bulls are right then when this rally ends the market should not pullback much at all, but simply go sideways for 3-8 weeks before moving higher.

So you can stop feeling uncertain about the stock market. Just watch which one of these scenarios play out over the next few weeks and take action once it is clear to you what is happening.

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About the author

Mike Swanson

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