Dribbler Market Set to Leak a Little More

There isn't any significant news this morning but pre-market futures are down anyway. The market has been leaking off stock since last Wednesday with two bouts of intra-day short covering in-between (Friday and Yesterday). The price action has been slowing down a bit, but not quite as much as I expected.

I have noticed two things: one is that the opens and closes this week have all stayed within Friday's open and close, and the second is that the shorts are pretty twitchy lately. So we may see some more back and forth puck slapping intra-day between the tense Bulls leaking out stock and the twitchy Bears covering shorts.

Here is a chart of the Dow:
(click on image to enlarge)

The market will probably test yesterday's lows right out of the gate. The Dow may reach in to the 8,500 area in the first few hours as the Bulls disgorge themselves of stock a bit. But I will be watching for another twitchy short-covering moment sometime later in the day. So be somewhat nimble on the trades, we still haven't cleared any hurdles that are leading to clean signals and simple price action. I have puts on the DIA and SPY from yesterday that I will start scaling out of on the initial drop out of the gate. But I will look to play one more good leg down this morning with more puts if it sets up right. I will run with the puts as long as I don't see one of those sharp short-covering jumps intra-day. If the jump doesn't go too far, it may be another put buying opportunity. Be aware that the 8,200 - 8,500 area has been the reversal zone on the Dow for about a month, so once again, don't get too fancy if we get deep into that zone, be ready to lock down profits and walk.