Tickers discussed: SPY QQQ IWM Major Strategy and Tactical Update
The Stock Market Recap provides a quick review of the day’s action with key levels, trading locations and timely commentary to keep you on the right side of the trade.
FED FAIL
- Trader’s gave President Trump a pie in the face after last night’s speech. The selling started last night at 9.30pm and literally never stopped; not even after the closing bell.
- SPY down 9.57% QQQ down 9.17% IWM down 11.07%
- Around noon, Jay Powell &Co. Announced a $1.5T liquidity bazooka to shore up repo operations and the bond market. That cause a nasty spike in equities until folks figured out shoring up the plumbing wasn’t going to help the economy in the least. 100% FADE to and thru the lows of the day.
- It must be demoralizing for Powell. The market fades him every time. He will whack rates at the next meeting and they’ll fade him again. Lower rates won’t bring back the NBA, fill restaurants, or movie theaters. Disney said to be closing Disneyland CA…low rates wont fill the theme parks either.
- Instead of working on an emergency fiscal bazooka response, Congress went home for the weekend. Your government at work.
- Tomorrow could be brutal. Hey let’s get long into another corona weekend !! NOT!
- I can see more selling; possibly an epic flush move.
- No idea, just wondering who wants to go home long into a potentially horrible corona news flow weekend and arrive Monday to a limit down open.
Technicals get Swamped
- Tried and true technical indicators are being over-run and ignored. The “we should bounce here” line has failed multiple times
- The only thing to go on is support / resistance levels and the price action in front of your face.
- A big lesson for technicians like me. Technicals can be very helpful but are not the be-all end all.
- Price pays and nothing else. Carve this in your desktop so you dont forget. I have!
Thoughts for Moving Ahead ( Re-post for Newcomers )
- Attitude Adjustment
- Touch base with your attitude and current mindset
- It’s very easy to spiral out of control with negativity. It could be that you were hung out to dry at the top and you’ve seen lots of paper gains evaporate. It could be that you had the whole “fake rally” nailed but fumbled the ball just before you would have made a lot of money on the downside. Maybe you lost money at the top of the turn and lost more money trying to catch up on the downside. What’s done is done; you’ve got to let that go before you can be open to the opportunities ahead.
- Huge Opportunities ahead
- You can make a huge amount of money in a short period of time in high volatility markets
- If you are primarily a long-only investor / trader, be patient. Marshal your cash and make a list of what you want to own. BE READY. This market will turn.
- Massive bargains will be had, but your timing has to be right
- More downside coming
- Re-focus attention to the December 2018 lows. IWM hit that level yesterday. Find that location on the stocks you follow and use as a benchmark location
- If things so terribly wrong, at least some stocks will find the November 2016 breakout level.
- Know your locations; Drop fib levels over your charts. They are great guides to potential pull back locations.
- Fear is growing; not subsiding. We’ll overshoot on the downside
- Fed rate cuts will mean nothing; absolutely nothing
- Watch credit. LQD / HYG / JNK / TLT Credit dislocations coming
- Shift in Consumer Behavior
- Corona will shift consumer behavior even more than it already has.
- Consumers will be pulling back across the board on spending as fear grips them
- A global recession is now the base case
- Global economies are hitting full stop
- Like a nuclear reactor that goes cold, you simply don’t re-start it with a flip of the switch
- It takes a long time to re-start a cold economy.
- Forget about V-shaped recovery fantasies. If it happens great, but dont plan on it
- Refuse to lose
- Don’t sulk or get down on yourself
- Re-focus your mind and refuse to lose
- Resolve yourself to emerge on the other side of this in good shape.
- Attitude is a leading indicator for results
Strategy Overview and Key Thoughts ( updated )
- From here forward plan to fade all rallies until further notice
- We are in a bear market; adjust your mindset
- Bear market rallies by their very nature are vicious and very convincing
- Feel free to ride them to their conclusion, but know all along they will fail
- Use the rallies to locate / re-deploy shorts at higher prices.
- Wherever this leg down ends, we will re-visit again
- About those shorts
- When I short I always do so by being long puts or put spreads or by selling call spreads to express a bearish view
- I have NEVER shorted common shares. You are welcome to do so, but that is not what I do.
- Another option for those uncomfortable with options, there are many many liquid 2x and 3x bear ETFs for everything under the sun
- If you are not comfortable being bearish, this is a great time to learn. Try buying a bearish ETF and play around with it.
- You will possibly appreciate bearish positioning by realizing in the last 3 weeks we’ve wiped out well over a year’s worth of gains
- Fade rallies; use higher prices to locate shorts at higher prices.
- $NYMO at historic lows and a Fiscal Bazooka looms
- Fiscal response will eventually happen
- The laws of physics and market dynamics will eventually take over.
- This is NOT a full on short Moment; short with care and dont get over committed with capital
- Dont get caught in a full on bazooka short when fiscal stimulus and NYMO hit. Would have the potential for mortal damage
- Trading styles: Trading this market isn’t a walk in the park. If you’re trading this market and you don’t feel comfortable because active trading really isnt you’re thing, simply stop. THe most important aspect of trading is “know thyself”. You will lose a lot of money trying to trade against your nature.
- The Corona problem is in the hands of the medical professionals and luck. Rate cuts and spending packages are band-aids. Comforting but not curative.
- Be ready for Wave 2: Wave 2 is when we start seeing Corona’s impact on actual data points like earnings and guidance, PMI’s, GDP’s etc To date the numbers have been pre-corona and honestly were not that hot to begin with. China just posted its PMI at 35…ugly Wave 2 may be the catalyst for price to roll over after a healthy bounce.
Trading a Hi-Vol Tape: Tips for success ( re-post for newcomers )
- Cash is king.
- Overnight risk is elevated in both directions.
- Be ready for swift 2-way trading during the day; Know your levels
- Hi-Vol markets are technically driven
- Narrow your focus to the liquid indexes, Sector ETFS, and a select number of stocks.
- The wild moves will demand focus and attention. If you stretch yourself thin, mistakes will multiply.
- Migrate from strategic to tactical thinking and trading. Near term, the days of sitting in positions for weeks and weeks is likely over.
- Expect added chop and volatility. A VIX greater than 30 is not “invest-able” it is a trading environment
- Reduce position sizing. With the added vol and out-sized moves you can make good money with smaller position sizes.
- Consider using spreads to mitigate the high cost of options.
- Consider selling call spreads instead of buying put spreads to express bearish outlook. Premiums will be elevated which is great for option sellers.
- Flip your mentality from offensive to defensive if you have not already done so.
- I expect bounces into key fib and OH resistance levels will ultimately fail. The range of possibilities are huge so trading becomes day- to- day, hand-to-hand combat keying off support and resistance levels
Index Chart Review
Going big picture this morning so you can get a feel for potential downside targets
SPY Weekly
We lost $250 today. That was a big level. Reclaiming it tomorrow would be a good shot in the arm for bulls but like I said above, who wants to be a hero going into a corona weekend? While below $250, $235 is the target on the downside. Below $235 is nothingness.
QQQ Weekly
Price lost $180 today and is now resistance. Traders went after AAPL and the FAAMG names late in the day. $165 is the next downside target, then the Dec lows if that cant hold. $165 tomorrow is well within what this market can do if it wants. Reclaiming $180 would be a big deal psychologically to end on a higher note than the dead lows for the week. Below that and its the Dec 2018 low of $145. .
IWM Weekly
WOW. If you show the chart to the average 7 year old, they would know its bad. Look at that red bar. down 22% for the week. If there was ever an index to lean on short its this one. Fade every single rally. I’d be shocked it this doesnt make a solid run at 90. $125 is massive overhead resistance with tons of bodies up there dying to sell.
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