Let the Market Decide

Last Friday was D-Day to inform hedge funds that you wanted to redeem your money, and it appears that investors did so in droves. I should have been tipped off about the likelihood of this week's downside action when I heard over the weekend that a major hedge fund had over 25% of its assets requested for redemptions by investors.

In my mind, I figured that the same scenario was likely to play out across the board and create massive forced selling again this week. I should have acted on that conclusion and been heavily short coming into the week. Unfortunately, I feared a massive short squeeze higher and failed to act on hard evidence. Oh well, another lesson learned.

You can see from the chart below that the plunge over the last couple of days has turned the support from the last two months to solid intermediate-term resistance.

S&P 500

Click here for larger image.

Source: TC2000

Another possible probing short-term buy point won't appear until we break above both red trendlines and cross the 900 mark, or we break much lower and build another base. The money stream at the bottom of the chart also needs to break out to confirm any move higher.

The Short S&P 500 ProShares (SH - commentary - Cramer's Take) inverse ETF broke out of an ascending triangle yesterday. The breakout was on very high volume and the top resistance area should now become support.

Short S&P 500 ProShares

Click here for larger image.

Source: TC2000

On Thursday afternoon, I was noticing that the money stream was making lower highs as the price was testing the upper boundary area, and that negative divergence is something that often leads to a change in trend. In fact, it was happening across all the major indices. The money stream sharply recovered during the last few hours of the day, however, and erased the negative readings. I am seeing changes in indicators that normally take days to weeks happening in a matter of hours.

---

At time of publication, Manning had no positions in the stocks mentioned, although holdings can change at any time.

Mark Manning, AAMS, is an Accredited Asset Management Specialist and Registered Investment Advisor with Butler, Wick & Co., where he specializes in wealth management. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Manning appreciates your feedback; click here to send him an email.