Shorts Have Their Ears Pinned Back

by Ryan Mallory

Market sentiment is nervous to say the least, even bulls are starting to realize this could be too much too fast. Economic conditions are still bad (take a look at retail and job reports), yet traders continue to stick their hand in the cookie jar in order to get every last crumb remaining, and recently that hand is starting to get slapped (enter Monday's Sell-Off).

Another telling sign, is that short interest has dramatically declined across the board, meaning there are less traders out there to shake out of positions, in order that they cover their positions, and thus add additional buying power to this market. Instead, they are waiting and waiting patiently, nibbling on a few opportunities here and there, but once the flood gates open, we could see the declines that were ever so common back in 2008. The market is not moving up in a methodical fashion, it is showing some of the Greenspan "Irrational Exuberance" and the simply doesn't bode well for the bulls either.

Longs won't hang around this market for very long, they have done very well over the past 6 months, and the slightest scent of 2008 or anything like it, will have them scurrying to the sidelines. We have three short positions right now, and could add a fourth tomorrow or Monday if there is a descent setup to be had.

Sentiment is gradually changing, the kool-aide that has been offered to investors the past few months, is looking like poison to some. The best thing that you can do with your long positions, is to tighten your stops, make sure that you don't allow the market to run too hard against you before opting out.

From my own trading approach, my only concern at this point, is that I may have gotten into UNH and BBT too soon (each are short positions), but so far the position has held up quite well for me as I have staged my position in each of those stocks to raise the average short-price , and will continue to buy more shares if the stocks continues to rise (not going to exceed though my allocated position capital towards each trade).

Have a great evening everyone!