That was a nice bounce.

Now what's next?

There's a push and pull happening in the markets. US economic data is helping push things higher, since we're not falling into recession (at least not yet), but international forces are pulling things down, so as long as this push/pull dynamic is in place, I'm expecting markets to trade sideways in a jerky movement.

Lots of Fear

All right. The market has continued to fall another 3% since the last comment. The perfect manifestation of fear is the Gold market. Take a look at GLD. Very overbought on the daily metrics, and starting to get there on weekly metrics. The short term bottom is getting close.

This Market Doesn't Feel Right

It's one thing to buy on the dip... but the major rule that applies to that is that dips should be bought on UPTRENDS. But now we are in a downtrend, dips have smaller bounce potential, and typically rallies are sold into. Which is what we are seeing right now.

There's definitely a sense that markets are not playing according to the old playbook of the past 6 years. China seems to be spiraling lower into economic weakness every month, and US markets just can't shake off that funk.

It's often pointed out that stock markets don't really get into a bear market unless economic indicators go into recession. But the rule doesn't always hold. This one may be that exception to the rule, in that while there may not be a recession YET, there IS a profit margin recession taking place. That might be enough to tip sentiment into bear market territory.

It's problematic when the professionals say, "Yeah, sentiment is bearish, therefore markets are due for a bounce." This line of thinking usually works..in UPTRENDS. There will come a time when market sentiment is right and weakness will lead to further weakness. The primary ingredient for something like that is in place, and that is the DOWNTREND we are in.

Staying small or hedged seems like the best path to take in this environment.