Volume jumped across the board giving a day of distribution to all indexes as we just witnessed the worst performance the stock market has had since Trump’s election. A bright spot was certainly the major indexes holding onto key moving averages and the NASDAQ held onto its 10 day moving average. During the session lows the put/call ratio hit 1.36; while not extreme it still is a high ready. Many are on edge with Trump’s presidency and this weekend’s debacle with immigration certainly made many nervous. We will avoid this worry and strictly rely on price action. It does not do us any good to worry about what may or may not happen. Our focus is on the now and what we can do to control our situation. This is not how you really want to start out the week, but we’ll see if this selling accelerates.
So many are worried over this stock market and whether or not it is going to have a large correction. We continue to see volatility remain relatively quiet. VIX couldn’t hang onto its 12 handle and volatility measured by ATR still remains low. This may change at any moment, but for now the signs of a major break simply are not there at this time. We do have our exit strategy in place in case we reverse course. However, we are not about to miss out on any upside potential over our emotions. Many will certainly give up and bail based upon what they think may happen. For us, we will simply follow our strategy and react to how the market moves.
If we are to have a correction we would certainly welcome something lasting longer than a week or two. We still have not seen a 20% correction since 2011 where we briefly had a 20% correction intraday. Most traders would not be able to stand such a downtrend. We are able to because we protect our capital and do not take unnecessary risks. Those who are overexposed and have gigantic position sizes relative to their stops will get hurt the most. It takes quite a bit to recover from heavy losses. Stay focused and make sure you are on top of your risk management process.
Let’s see if this market wants to behave like an uptrend. Keep those losses small!