The View; Market In Correction

The market had a decent down day yesterday that could be a considered a follow thru from last weeks sell off.  Every etf and index that I follow closed below Friday’s bounce lows, which to me were important levels in the short term.  You never want to see the lows of a bounce taken out so quickly.  Once you get a price break that  is when all the warning signs you have been hearing about matter; NAAIM Survey, equity/etf/mutual fund inflows, CSFB fear index, insider/sell ratio etc…  Is this the end of the trend, is this a top,  these are things that I don’t put to much weigh on.  You want to make sure you have a road map but you have to make sure that you don’t marry that road map because you can easily allow your positions to cloud your judgement.

Tops are a process, that means that your selling has to be methodical and over time.  Bottoms are usually an event that for the most part happen and could happen in one day, so you want to be quick on the way in and slow on the way out.  Everyone says the little guy has an advantage over the whales because they can sell everything in 1 day, which is true but it is also a disadvantage because if not prudent you will become trigger happy on every little dip and sell everything, then you marry your bear thesis, and possibly miss the big forest due to a little tree (normal pullback within an uptrend).  Be methodical on the way out.

Here are some of the things that stand out from The View;

  • $COMPQ, $SPY, $IWM $DIA are all trading below their 10 day and 20 day moving averages, a warning sign for swing traders who’s time frame is 5-20 days.
  • The $NDX is below the 10,20, and 50 day.
  • $TLT is outperforming in the last 5 days.
  • IBD now has the current market outlook as market in correction with the NYSE leading the way with 7 distribution days.
  • The $VIX is now trading above its upper bollinger band, this will be my clue as to when I would dip my toe on the long side for a trade.  If and when it gets jumpy and starts to gap up is when I start to warm up to bounce possibilities.
  • There is a massive amount of ETF’S below their lower bollinger band, if one were looking for mean reversion plays I would start here before I look at any individual stocks.
  • Many of the SP500 sectors are oversold based on the amount of stocks within the etf’s that are trading above their 10 day moving averages.

 


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.


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