Time to Play Defense

There's nothing that I can put my finger on to prove or confirm it, but after 20 years of tape reading, the market just feels like it's massively manipulated -- for a change.

I used to be able to key off earnings, analyses or momentum, but now nothing means nothing and many times something means nothing.

Is the breakout important or is the breakdown important?

On Wednesday, initially, the indices followed through from Tuesday's outside day down, but then, at the end of the session, our old friend Late Day Levitation showed up. Call him MOC -- Market-On-Close buy program. Call him Equity Lazarus.

What can you say about a stock when it is not bought because there is a desire to own it, but only because it is part of a basket, and a short-term basket at that?

Perhaps one of the reasons why the market was "saved" by the bell on Wednesday is because there are 23 new IPOs due in December.

So, Tuesday, the S&P left an outside day down, which was followed by a Lizard buy setup on Wednesday. A Lizard buy setup is a tail up, in other words, a new 10-day low with an open and close near the top of the day's range. In other words, after selling off, the S&P left a "tail" by recovering the losses of the day and closing near the open and the high end of the session.

Ditto the Nazz, which bounced back after tagging the gap up left on Nov. 24. However, after kissing the psychological 2000 level, the Nazz has now lost 100 points in only six sessions. We have seen the same kind of corrections before -- in September, October and November.

But any further decline from here would overbalance the price action and confirm at least an intermediate change in trend. The dramatic two-day slide in the leading homebuilding group looks to underscore the defensive position in the market that I feel is warranted.

Conclusion: Look to sell strength and all rally attempts until proven otherwise, even if Thursday proves to be a one-day rally, which would not surprise me at all.

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Jeff Cooper is the creator of the Hit and Run Methodology and the author of the best-selling books Hit and Run Trading (The Short-Term Stock Traders' Bible), Hit and Run II (Capturing Explosive Short-Term Moves in Stocks), as well as a video course, Jeff Cooper on Dominating the Day Trading Market. He also created the Hit and Run Nightly Reports and co-founded a trading markets Internet site. Click here for information about Cooper's email newsletter, The Trading Reports. At time of publication, Cooper held no positions in any of the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Cooper cannot provide investment advice or recommendations, he welcomes your feedback.

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