On days like today, you see many traders whining about how politicians and external events lost them a lot of money in the market. They were holding such beautiful stocks with amazing potential until…IT happened. Sure seems like an easy thing to do. Why come to terms with your face-buried-in-the-sand-all-in-triple-long strategy, when some four-eyed schmuck of a screaming Senator on television has his glasses dangling from his nose like he is about to flunk your doctoral dissertation? Well, the fact is that we have been losing momentum as of late in the markets, and I strongly suggested that you have a large cash position throughout earnings season to boot.
Stocks are getting crushed today, and the underlying action is even worse. We have taken out the 20 day moving average on the $SPX and, barring an impressive close, we have also clearly broken down below the trend line of the rally since February. The best thing I can tell you right now is to IMMEDIATELY come to terms with your current portfolio. Cut any laggards you have had on the long side, as they will get crushed twice as much in a correction. Beyond that, being at least 30% cash is the ideal position. We have many layers of support below us, so if you choose to aggressively short here then you need to be extremely nimble doing so.
Finally, if we manage a rally attempt this afternoon, watch the 1195 and 1200 levels as resistance to see how well we negotiate them as a gauge of strength.
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We got the spike up past 1195 to 1196, let’s see if it can hold.
Good job above 1195–now let’s see about 1200.
Chess,
This is where strategery pays off and I often get it wrong. Just curious how you would play this if we hold above the 20 day or even 1200: increase equity position, stay the same, raise more cash and watch for awhile?
If we close above the 20 and/or 1200, I would still be reticent to put on new longs here. The underlying action is weak. Several market leaders like $AAPL could fall quite a ways and still be within a general uptrend. Same with the small caps. So, at the very least, the market is telling us it needs to take a breather from the momentum trade, regardless of where it closes today. It still is relevant how we finish, don’t get me wrong, but putting fresh capital to the long side here is a matter of discipline right now. Even if it is only a minor pullback, there is a change in sentiment taking place right now.