Based on the model I'm presently working with I will sell if there is a gap up in the AM and wait say 30 or so minutes to see if there is a reversal. If there is a reversal and then a turn and the model's state is still Long I will then go long again.
In the alternative, if there is no gap up I will watch for a signal SMH is entering a Neutral or Short state and follow accordingly. The model I'm working with produces 0 to 3 trade signals per day and in theory profits of 0.05 to 1.00 pts. per trade (over the last five days I've been following it).
My previous long trades, which I continue to hold as you can see, are based on the belief (faith) that at this stage in the economic recovery SMH will not sustain much more than a max pullback of 15 % before starting another run at a new high. I would not play this kind of a game with a short position at this stage of the economic cycle, but I am willing to assume this risk in the case of a long position that is some distance from being maxed out in terms of position size.
Shorts, IMO, are much more stressful because the potential loss is so large and the market at this stage in the economic cycle can develop a powerful bullish bias very quickly, move fast with only brief pullbacks and thus be very frightening to short holders who are high risk for being trapped with large losses.
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