One day after a tremendous rally sellers regain control erasing majority of Wednesday’s gains. Even after the European close buyers were not around to give the market support. Volume fell day over day, but price certainly told a story today. Yesterday’s action certainly was promising, but we needed to see immediate follow-through to the upside and we did not get it. There is still a chance we see this market push higher despite today. Unfortunately, it appears we need a bit more time to settle this market down. This market is not going to make things easy for many traders and it is paramount we stick with our process.
Sentiment continues to favor the bull camp. AAII investor sentiment got MORE bullish. Perhaps last Thursday’s reversal was the catalyst for bulls to increase rather than run scared. While the small investor continued to be bullish NAAIM active managers went the opposite direction. NAAIM Exposure Index dropped to 33%. Historically, when the NAAIM Exposure Index is sub 40% there is a subsequent equity market rally. Since this is a weekly index you cannot pair it with daily market action and it certainly does not guarantee a rally. Stay patient and follow the Big Wave Trading process.
Cash is the best place to be right now. The short side seems quite obvious here and the long side still presents a poor risk/reward situation. We need to see this market tighten up and push higher. If this volatility continues it will certainly make it difficult having any conviction in any direction. Overtrading here is certainly very dangerous and trying to be a hero with large bets is nearly committing portfolio suicide. Stay patient.
Do not let the volatility scare you. Volatility presents excellent opportunities over the long run. Stick with it and have a great weekend!
