Are you ready to catch a falling knife?

3:30     Here we have another day coming to an end in 30 minutes and – humm, but no dollars in my pocket and that is because I sat on my hands – AGAIN. O.K. it was another low volume boring market today, the same ol, same ol. Unfortunately, as a trader, you have to watch every lousy second or you will miss out when the “event” happens.

The Market appears to be primed to move down on a moments notice as was seen this morning when helicopter Ben said no to QE3 (or at least not now). When we see another event like this morning, but with heavy volume it will be the real thing – be ready for it. This mornings drop on the DOW was a measly 100 points and that is a quiet Summers breeze compared to a 600 point drop possible. Three hundred plus points and heavy volume would be a good signal in my book to consider jumping on the train.

The thought of waiting until the last moment to squeeze out the last penny of your longs my be your downfall. Cash at this point is the best strategy as you will never catch the falling knife. So prepare a plan that will be a hedge of sorts. Are you ready for tomorrow?

Personally, I have no idea what is in store for us tomorrow except that I don’t see the markets taking off and radically climbing to new highs. The moderately favorable Beige Book this afternoon was a ho-hum affair with Mr. Market actually falling slightly. The intraday trading has been off for some time and the thought of holding overnight has a narcissistic value to it. This is a tough time for traders as the risk/reward is more on the risk side with any profits being very lean to say the least.

The “indicators” I have been using lately are more bearish than bullish. The higher the number the bearish the market sentiment. As an example, at the close on Monday the 500 closed at 1367. My “signal” was +306, Tuesday the 500 closed at 1372 and the “signal” was at -359. Today the market was as high as 1377 and the signal was only -87. At 1372 the “signal” is at +164. That tells me the bears are waiting and you had better be ready for just about anything as this is NOT a bull market.

With this low volume phenomenon going on, there is little you can do as a trader. The charts are shot, trashed and generally useless and can only be used as a historical point of reference. You are going to be forced to wait until there is more volume and more volatility on the VIX.

More after the close.

Written by Gary