Margin Requirements Send The Bulls Running Away

For four straight days, the markets have taken significant technical damage. Many longs have become frustrated and battered, especially if you have been highly levered to commodities throughout this damage. Silver continues to lead the markets lower after its freakish move north. With margin requirements continuing to be increased let along a dollar that is showing a little strength, the markets seemingly had no choice but to plunge. During this, I am trying to sit on my hands as much as possible and do very little buying, if any. Cash is king now. This is not the end of the world, this is simply creating better buying opportunities for the longs. I just do not want to buy until I see true healing and the bulls are making a real push rather than trying to predict a bottom and finding out the hard-way why predicting bottoms is painful most of the time. This is exactly why we have stop losses and cut our losses quickly to prevent significant damage. Many times this is easier said than done, but it’s a skill a trader must master. We are in capital preservation mode for now.

Technically, we need are due for oversold bounce but, I’ll be a net seller into that. I may do a few daytrades with very tight timeframes though. We must keep our eyes peeled for a bounce to lose steam. If it starts to lose steam, we want to be out of our positions before another fall takes place. If we are wrong and the bounce turns into a rally, we’ll have multiple green days to get back into the market at slightly higher prices. That is a safer strategy to implement.

Looking at the charts, we bounced off the trendline today (see charts below) and closed barely above the 20-day SMA. I would not be surprised to see us break the trendline over the coming days and find support near the 50-day SMA. Bulls have taken a nasty beating lately and many may find it tough to jump back in too quickly. As stated, a bounce is likely, but due to all these bulls being beaten, expect these bulls to be relieved just to sell into any bounce and try to buy back lower. We have had a habit of bounces turning into V-shaped recoveries over the past few years, so we can keep our eyes out for that. It is just not wise to aggressively buy and hope for another one. The pain from being wrong there can make you lose all your profits very quickly. I’m expecting the bulls may want to lick their wounds a bit longer.

Daily Chart

Intraday Chart