Rollover In Emerging Markets

There's just no good way to put lipstick on this pig so I'm not going to try.

We tested last Wednesday's intraday low (around 1380ish in the S&P 500) as the emerging markets rolled over. Remember, in prior short-term bottoms, we saw overseas markets bottom out and reverse course BEFORE the United States. Instead, they are getting weaker instead of stronger (take a look at today's explosive gains in the bearish emerging market etfs: FXP, EEV, EFU). Not good.

Looking ahead, a few more days like today should get us back to extreme oversold conditions where long trades have at least a decent chance of success. And, at this pace, we'll probably wind up breaking every technical foothold getting there that you will seem like a blind fool or complete idiot to buy anything.

If I had my preference, we'd see a much larger selloff instead of this slow water torture, but I'm sure that is too much to ask for with the number of strings that are being pulled behind the scenes by the Fed among others. After all, everyone's now expecting big things from Bernanke at the end of the month along with the State Of The Union speech by Bush. When the market depends on these two guys to save the day, you know things aren't very good.

All in all, not a very attractive situation unless you're a raging bear and shorting the market with everything you've got. With the Fed scare out there (the latest rumor is that Ben will cut rates on Friday to kill the bears on option expiration), I still believe the shorts are too nervous to stay bold in their positions (and therefore the short-squeeze rally will be muted). All in all, far too much complacency on both sides of the tape - both bull and bear alike.

Finally, although I'm being redundant, if you have trades that have moved against you recently (like in the solar stocks), take your medicine and move on. Live to trade another day should be your new motto. Please don't email me in a few months from now saying that you lost everything because you didn't stick to your discipline. I received thousands of emails like that the last time the market turned this ugly and I promised myself back then that when faced with the same situation I would do everything I could to urge others to not be so complacent about taking their losses. No matter how long you do this, it is never easy to admit you've made a mistake, but you must if you desire to stay in the game.

Trust me, there will be far better days ahead than this one. Now is simply a matter of making sure you do what is necessary to get there.