Still on guard for more downside..US dollar to get a pop?

Microsoft's and Amazon's blowout numbers couldn't prevent the market from reversing Thursday's gains. Seems like Thursday's pop was indeed a heakfake. What we are seeing now is a sell on the news reaction from the market which I was expecting to have occured last week. I've noticed the retail bears are getting quite excited again with the market only off about 2% from the latest high and I've seen this reaction every time since April....it's kind of like getting excited landing a jab on Mike Tyson after he has been beating you to pulp for an hour. I think what we will be seeing is a normal correction in a bull market.

I believe there's more downside in store for the following reasons

1) The 10 DMA of the put/call ratio got very low.
2) The VIX got quite oversold and hit the 20 level normally associated at IT tops.
3) Momentum indictors have rolled over and turned negative and not yet hit oversold levels
4) Rydex traders are not bearish....yet
5) Bonds have sold off here (this is an important one...remember how I've been saying before that corrections usually occur after some sort of sell-off in bonds...well, we got one now).

The US dollar also might see a vicious snapback which would be consistent with more downside in the market. As the chart below shows, it's forming a falling wedge technical pattern which normally resolves itself with an upside breakout.



So, in my view there is quite a bit of bearish evidence here that even as a longer term bull I cannot dismiss. It's likely however that any downside will be ST or IT in nature and NOT the end of the bull market. Trying to profit from any downside will be tricky as we've seen with Thursday's heakfake which is why I like to use OTM all or nothing put plays to avoid getting whipsawed.

Could I be wrong and the market simply reaches more extremes in the indicators such as the put/call ratio, VIX, ect? Of course...but it's all about risk/reward and probabilities and right now it suggests at the very least that longs should be cautious in the ST. The name of this site is called bulls, bears and pigs....don't be the latter.

I see a lot of bears getting excited about what they feel is the end of this rally that began in March. From a longer term sentiment perspective the wall of worry is still indeed quite strong. Lot's of people have their guard up....even bulls like me which is a bullish sign longer term. Lot's of people think there's going to be a correction, but they think it's going to be the 10%+ type....I doubt it. I believe that any correction will be about 3-6% from the recent high. If we get a 10% correction, better watch out because that would likley signal for even more downside.

If the rally since March is a true bull market it should not be giving people convenient entry points such as the 10% corrections people have been calling for everytime which never came to fruition. History has shown that you don't see 10% corrections within the first 12 months of the initial bull market thrust.

Also, do you notice how the SPX stopped right at 1100? That's a nice neat number, well known to everyone as a resistence level which makes me believe that it will not hold as a long term top...it's far too obvious..such a top has an "artificial" feel to it. I felt the same way when the SPX hit a ST top at 875.

So, if you want to play the short side go ahead, but just be warned that you are bucking the longer term trend and there's a lot of people who are going to be trying to do the same trade which can result in days like Thursday.