It is probably time to get long again. On Thursday the S&P 500 showed its indecision in continuing the trend with a doji candlestick pattern, and on Friday, the market posted a clear reversal sign – a green hammer. This is the precise opposite of the hammer that gave the signal to initiate the trade.
I delayed closing the short until Tuesday morning, because I wanted to be clear on the reasoning of the reversal – at least in public perception. I was wrong to wait, but I only lost a few percentage points. I will take my small gain.
The signs of a fundamental reversal have been appearing – the lowering unemployment, the rises in sales data, and the continuing rebound in housing. The perception about the fiscal cliff has radically improved, though it remains to be seen whether there really will be progress towards a compromise. Europe is still giving too many contradictory signs to know whether deleveraging is done in the area.