The Bearish Argument Is Easy

 | Aug 30, 2012 | 11:00 AM EDT
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Reality about the potential for a QE3 announcement from Ben Bernanke tomorrow is kicking in this morning with a bout of selling. Profit-taking isn't too surprising here, and the fact that it has been so slow lately is probably enticing more folks to the sidelines.

The bigger issue is whether this is a top and the start of a downtrend or just a healthy pullback that will set up further upside once the Jackson Hole event is concluded.

The bearish argument is easy to make. With the Fed on hold, Europe still a mess, and the start of the seasonally weakest time of the year, conditions are ripe for the market to roll over. We are also starting to see a slowing of the momentum that has carried the market most of the summer. There is some leadership in retail and a few big-cap names like Google (GOOG) and Amazon (AMZN), but it has not been easy to build many big positions.

Although I'm still giving the bulls room here, I'm positioned defensively and holding a high level of cash because of the lack of favorable setups. This very slow, low-volume action has not created many good reasons to be aggressive with buys.

While this action is poor today on worries about Bernanke tomorrow, I'm looking for a decent bounce at some point, even if Bernanke just repeats what he has been saying for a while about watching the data and waiting to act.

I sold down more of Sarepta (SRPT), which has been a big winner since it was my Stock of the Week. I'm keeping an eye on Facebook (FB) as a bounce play after bullish comments from Piper Jaffray today, but mostly I'm lying back and waiting.

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