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Wednesday, September 28, 2011 - Short Term Update

|Includes: DIA, QQQ, SPDR S&P 500 Trust ETF (SPY)

Short note tonight, I have family visiting.

Tuesday Recap:

Price action has forced me to take a neutral stance. The market could go either way, though I'm leaning toward the bearish side (see yesterday's note on the McClellan).

Wednesday:
On a 15 minute chart the SPX/SPY broke down and followed through, which prompted me to take a short position in the SPY midday. The SPX/SPY broke below 1160/116 on a daily closing basis, which gave me enough confidence to hold through the close. In my opinion the 5 day moving average of the McClellan oscillator has yet to have a move below -1 standard deviation, which is something I want to see before I would start to look for a hard bottom. Right now I'm operating under the assumption that we are in the last sub-wave of the first wave lower in a bear market. I think the August/September lows will be tested, with a better than 50/50 chance of being broken.

A rally back to 118 SPY would prompt me to stop out and once again adopt a neutral stance until more directional clarity emerged. Hopefully we will be able to avoid this whipsaw.

Most of the other indicators I watch, especially sentiment, are lining up to the bullish side. Once this last leg lower in the books, I'm expecting a large rally, most likely starting in early to mid October. Based on how negative sentiment is becoming, it could be sizable. SO just as the bear market is confirmed with the popular 20% mark, I'll probably start to get short term bullish.

I'll try and have a more complete note tomorrow. Until then.
-Bill L.