Bear Trap Developing?

Finally the bears are having their day. When I saw majority of the stock on my watch list start to roll over during the last hour of trading yesterday, I sensed a pullback could be developing. Being a cautious trader, I pull the trigger and closed out all my longs before the close yesterday and moved to the sideline. Today, the market opened higher with a positive unemployment report. Then after 30 minutes of trading and with a negative existing home sales report, the bears took control once again and drove the market down into the red. The market attempted to rally during the last couple hours of trading, but this time the bears held their ground.

Even though the bears are in control right now, it doesn’t mean the rally is over or the 10,000 and 1,100 level for the Dow & SP500 respectively is history. To the contrary, I am watching for potential bear trap that could spring up to push the market to the 10,000 and 1,100 for the Dow & SP500 respectively. In the following charts, I have highlighted the potential zone where I will be watching for possible bear trap to develop.








Until I see technical deteriorations that accompany market reversal, I will treat this pullback as a setup for the next up leg move. Again, I will continue to be cautious since this rally is full of suspicions and it is over extended. It is like a game of musical chairs, always be prepare for the imminent stop playing of the music. I would rather sit down, get back up and look a bit silly than get caught without a chair to sit, because without a chair to sit, it’s ‘Game Over’.