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Waiting for the Snap-back to Add to Shorts

I am not in the camp that this is the "mother of all buying opportunities."  While I do believe, over the long-term, the debt fears related to the PIIGS (Portugal, Ireland, Italy, Greece and Spain) may be understated, I am also of the opinion that sentiment turned so bearish so quickly that we are likely to see some snap back (even if tempered) over the short-term.  Should the markets respond predictably, and give us a bounce, it will present us with the opportunity to gauge what strength is left in the 'Ol Girl.

Many of the instruments we have been watching for shorts have done marvelously - emerging markets (EWZ, FXI, EDZ), junk bonds (HYG, JNK), small caps (NYSEARCA:UWM).  These are areas I will want to examine for follow-up short positions (or add to existing ones) on any notable strength.  Watch the sentiment indicators carefully.  A sharp move back to bullishness would be a bad sign for the markets.

The moves in the dollar and the euro have wide-ranging implications.  Should the markets take a prolonged breather - i.e. 2010 turning into a sideways or down year - it may be better for investors to simply go defensive rather than trying to ride out or cherry pick the correction.  Getting out of remaining longs on the next bounce - or at the very least writing covered calls against longer-term positions - seems the prudent choice.  More aggressive investors may simply want to short the market. 

One does not need to have a Robert Prechter premonition of future collapse to smell foul odors in the air.  The market is done with its retracement, there are a sufficient number of bulls to slaughter, and governments worldwide have embarked upon saving us with seemingly well-intentioned political idiocy.  Don't get me wrong, I love to pay taxes.  Just as I am sure that we all work hard to stay out of debt for the specific purpose of having more money to pay for our nation's growing deficit, right?

Irrespective of the outcome of the current European debt debacle, with leadership from last year falling from grace, investors and traders would be shrewd to wait for new leadership to emerge before getting giddy again with their capital.  2009 was an outstanding year for the bulls.  Better to take gains and leave proud than be carried out on your shield.