Sometimes the market is complicated and obscure, other times it is fairly clear. This is one of those “clear” times.Now is when technical analysis offers clarity in the midst of chaos. It’s just that most traders try to impose their own emotional overlay on top of market behavior. At brunch today, I overheard one young broker loudly proclaim that everyone should buy tomorrow and hold until we crack a new high. I shivered listening to him hustle some older family members, knowing he hadn’t a clue.

As we stand today, the trend is down. We’ve formed a 1,2,3 Lower Spike Top, and we’re selling off. Basically, we’ve made a lower high and we trend down until we make a higher low. The market is too oversold to short, so the best trade is to wait until the market bounces and then short. The best shorts are usually the indexes, but I’m most interested in the inverse financial ETFs, like SKF. Since the financials led the market up, it seems likely that they will lead the market down. After the bounce, I look for the market to grind down and eventually test the lows. Most probably we are in a long-term secular bear market, and while we will have breath-stopping bull runs, the market will struggle.

One of the most common myths about Wall Street is that there is a link between the stock market and the economy. Maybe once upon a time that was true, but over the last few years, the market trades on its own needs–a landing place for massive amounts of institutional and hedge fund money. Commodities and currencies more or less follow economic fundamentals, but are subject to extreme money flows. However, there are a few clear signs of what the world’s various economies are doing. Most country funds have rolled over and headed down, oil is overpriced, Europe is headed down, and US bonds are overbought. The US stock market will take a few weeks to settle down, but most likely we will see a bounce into a declining moving average, a failure and a resumption of the down move and eventually a test of the lows. Remember retests are the way the market establishes support. The easiest and safest trades are short term long/short the indexes through ETFs. If you swing trade like I do, shorten the holding time and reduce the amount.