As you can see, we had a devasting close yesterday and another devasating one this morning for anyone who was net long in their portfolio. I’ve been letting my stops trigger and not doing anything else as we should see a bounce, but we are likely to see more downside still. As of right now, we are not seeing much of a bounce and are drifting near the lows of the day. If we break the lows in the S&P500, we could fall all the way to 1120 support. If you are a long-term holder, that may be a good area to start nibbling at. That is not my style of trading though, so I will only look for a bounce to trade around at that support level. Quick and nimble is my strategy. The next crucial support after that level is August lows of 1101. If we break that, many market players are going to lose enough faith in the markets that we could trend much lower on weak volume. When that happens, markets can fall past logical levels. Therefore, tread careful.
This fall may force some more action by the Fed and Bernanke. Global markets are being punished more than us, so many believe we are going to follow suit and fall at least another 10% into true “Bear Market” territory. This would not surprise me, but I don’t want to predict that either as the Fed could come in at any point with more money printing creating a strong rally.
Cash is king right now as the dollar strengthens on European concerns and lack of additional money printing in the short-term. This is good for the consumer who gets to buy with a stronger dollar, but bad for their portfolios that are likely bleeding dollars.
With the S&P500 around 1133 as I’m writing this, my strategy is to add more short exposure on a bounce. I see much upside resistance after these two terrible days as many market players will be happy just to break-even and sell creating more resistance levels. Without the Fed intervening or the dollar selling off, I am more inclined to be bearish on any bounce. I will look to be moving into ProShares UltraShort Russell2000 (TWM) on a failed bounce rather than trying to bottom fish just yet and buy long. Though I may run some long bounce trades off the 1120 level in the S&P500. Most likely, it appears I’ll be moving back to the index strategy rather than indiviual stock strategy until the market calms down again. I’m still disappointed I did not have more cash or short exposure before the Fed meeting. I got caught up in the bullish optimism that was not realistic, but a good story at the time.
Keep in mind that Friday has the Israel-Palestinean United Nations vote. I have not seen much coverage of it lately, which is likely good for the markets as only more negative for the markets can happen from that situation. If all stays peaceful, the market is not going to rally because of it. If it is not peaceful, the market can definitely fall more from it. We are still handcuffed to the headlines at the moment, so we can not forget that. Adjust your strategies accordingly.
Protect your capital, don’t rush to buy without an edge in knowing the direction. Play it safe for better market conditions. You’ll be thankful when you don’t rack up big losses.
As always, do your own homework to see if you agree. Good luck out there,
Mike
No positions
