It's Adult Swim Now, Act Accordingly

Friday, September 8th, 2017, was the last time that the Dow Jones Industrial Average tested its 50-day simple moving average. You might want to let that sink in for a moment, since we know that bull markets can go on for over a year at times without a given index chart testing its 200-day moving average.

However, the 50-day is much more of an intermediate-term reference point. And to go that long without a test by price (let alone a close call dip down to it), suggests that the Dow has been melting up on borrowed time. 

Given the price action this week, we now have more tangible evidence that we are dealing with a bit more standard corrective market that anything we have seen in a good while, which renders the knee-jerk buy-any-dip-aggressively strategy suspect. 

Furthermore, to see the Dow off by more than 400 points in the face of both AMZN beating earnings (and rallying, to boot) and strong jobs numbers ought to be yet another typical sign of a corrective market badly in need of a reset. 

While the temptation may be to rush in to short volatility and bet on an immediate V-shaped rally back to new highs, I am betting, at least via a hedge through a long DXD (ultra-short the Dow, since last week) that the Dow does indeed make it down to its 50-day (dark blue line on daily chart, below) this time around, which means we could have nearly 800 more points of downside to complete the proverbial "garden-variety" bull market pullback. 

Mind you, something more nefarious may be in the cards. But we will cross that bridge if and when we come to it. For now, though, the kiddie pool is empty and it is adult swim for bulls.