Here are a few compelling charts.
This chart of investment grade bonds suggests a recent change in the supply/demand balance for corporate paper. The steady rise of LQD over the past six months reflected an increasing risk appetite by bond investors. There were virtually no meaningful ticks to the downside over this period. The last two days have seen accelerated selling with increased volume suggesting that large positions are being liquidated, and perhaps the appetite for risk is in the process of decreasing.
Although this may lead to a change in the intermediate, or even long-term trend, I am especially risk averse trying to time shifts in market direction, as it often takes many attempts before a true top (or bottom) materializes. So, I will risk less than 1/4% of my portfolio with this position.
I will short LQD on it's next rally with a swing day reversal with a stop 1% above the high of the move. The number of shares will be determined by the distance between the entry price and the stop price.
Maximum risk: 170.00.
I will add to the position with a series of lower highs and lower lows.
As is stated in the chart, the Russell 2000 has gained appx 85% since the March bottom. My guess is the easy money has been made on the long side. The risk is shifting to the bulls. Anyone holding a position from a transaction occurring between Jan 06 and October 08 represents an eager seller, creating resistance at current levels. I'm not taking a position until one of two things happen: 1) The market fins a bottom, reverses upward, makes a lower high and turns back down breaking through the recent low, which would create a low risk entry, or 2) it rises toward the 62.00 level at which point I will short with any swing day reversal (a close below the low price of day the that the market makes its high for this move) with a stop 1% above the high price of the move.
The utilities have been rebuffed at the 30.00 level repeatedly. This implies a pool of sellers at this level. I'm initiating a small short position (100 shares) with a stop at 30.10.
Maximum risk: 160.00
Again, when I play a trend reversal I always start small as the area of least resistance is in the direction of the current trend. On the other hand, if the trend reverses, the greatest gains occur from being in the move from the beginning. My belief is that a lot of risk has been taken out of the short trade from the move made since March. So, I'm using tactics to get into short postions, and will continue to do this with tight stops until the market turns. I also believe that when the trend shifts downward there will be opportunities to add to the positions while decreasing risk.
There is one asset class that remains in a secular bull market: Gold. Looking at the chart dating back to 2001 it is obvious that the primary trend for gold is up. Gold has been consolidating between 660 and 1000 over the past 18 months. It has traded above the 850 range for most of this consolidation period, which suggests continued buying interest, and not a reversal in it's trend.
850 was the high in 1980. Interestingly, many people believe that gold is expensive given that it's trading near its all time high around 1000 bucks. I disagree. When adjusted for inflation, the high in 1980 would have been closer to 2350. Keep in mind that in 1980 the average new car sold for appx 6000. We are currently at less than half that valuation. I think gold has a long way to go. I have been accumulating small poositions between 850 and 950. I'm also accumulating Silver (SLV) and Gold Miners (GDX).
If I'm correct, and gold is in a secular bull market, I only need to ask myself one question:
How do secular bull markets end? Looking at any previous secular bull dating to the beginning of markets: real estate, tech stocks, industrials, railroads, tulips etc...one will notice that the bull ends when the general public believes that this time is different, and the asset in question will never go down. So, I will be a buyer of precious metals and miners until the time comes that I over hear grocery clerks, cab drivers, and moms at the park talking about buying or better yet, beginning their new venture as gold dealers. My guess is that the weighting of gold in the average portfolio at that time will exceed 25% and many people will have portfolios made up exclusively of gold. That's when I will watch for signs of the uptrend breaking.
Fubsy
This chart of investment grade bonds suggests a recent change in the supply/demand balance for corporate paper. The steady rise of LQD over the past six months reflected an increasing risk appetite by bond investors. There were virtually no meaningful ticks to the downside over this period. The last two days have seen accelerated selling with increased volume suggesting that large positions are being liquidated, and perhaps the appetite for risk is in the process of decreasing. 
As is stated in the chart, the Russell 2000 has gained appx 85% since the March bottom. My guess is the easy money has been made on the long side. The risk is shifting to the bulls. Anyone holding a position from a transaction occurring between Jan 06 and October 08 represents an eager seller, creating resistance at current levels. I'm not taking a position until one of two things happen: 1) The market fins a bottom, reverses upward, makes a lower high and turns back down breaking through the recent low, which would create a low risk entry, or 2) it rises toward the 62.00 level at which point I will short with any swing day reversal (a close below the low price of day the that the market makes its high for this move) with a stop 1% above the high price of the move.
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