On this MLK Holiday, the lag of U.S. leadership

has sown world-wide panic and confusion. Major Asian indexes are down 5% and European indexes are down 7% last night.

U.S. retail investors are likely to be spooked by this world-wide panic into putting up massive sell orders Tuesday morning. This should cause major U.S. indexes to gap down significantly, which will draw in buyers and provide an opening for a recovery.

We've already said we'll close our Dec 1st shorts using Friday's closing prices, so we're not going to change from that. However, if you are still holding short positions, it may be wise to close some of those short positions at the open on Tuesday and maybe even open small long positions.

We are unambiguously in a bear market so you should always hold more short positions than long positions. If the market is overbought, go 100% short. If the market is oversold, like it is now, take profit on 50% of your shorts and dapple slightly in longs only.

The current S&P level is actually a triple support structure. Besides the two structures mentioned yesterday, the 1300 level is also a major resistance level back in May 2001.

Looking at the long term chart, S&P has a top of 1552 in May 2000 and another top of 1562 in October 2007. In between, there's a low of 794 in Sept 2002. If the SPX should go below 800 again, as very likely it will, then the U.S. market will enter into a long term double-top and will go very, very low indeed. (Another possibility, as Ming pointed out in the comment section, is for the effective buying power to go very low, i.e., huge inflation. But inflation always accompany ridiculously cheap stock market levels because bank interest rates will be high. Let's not forget Warren Buffet started out buying cheap stocks in those kind of times.)

The point is, you'll make money if you do opposite of what the market does. That's always easier said than done, but repeated often enough, it may become our instinct.