Today’s session began with gains and it appeared there was nothing that was going to stop this market from heading higher. Sellers had a different plan, immediately hitting the market sending the market lower. While we did see relief at some points in the day, sellers continued to hit the market into the closing bell. It was the first time in 109 trading sessions since the last time the S&P 500 had seen more than a 1% drop. While we were certainly looking for this market to continue its uptrend it appears we are now in hot water. Stops will be raised and hedges will be initiated. Whether this is the start of a new downtrend remains to be seen. All we can do now is to manage what is in front of us. Today was not what you want to see if you are super bullish on the market.
Despite the market getting clocked today, the VIX barely moved. The “fear index” still sits with a 12 handle, even after the selling today. We knew this market was complacent, but even after a shot across the bow like today will market participants remain complacent? Hard to tell and we know the AAII survey showed quite a few bears. II and NAAIM still were quite bullish. How many trapped bulls and what level of fortitude do they have to stomach losses? So many questions, but the only thing that matters is price.
The type of reversal we experienced today with the amount of volume we saw should speaks volume as to the state of this uptrend. There were quite a few stocks wedging higher throughout the uptrend showing a clear indication institutional buyers support was waning. In addition, there were quite a few leading stocks in stage 3 bases known for a high level of failure. Going forward we’ll have to continue to be vigilant with our portfolio protecting our capital.
Not a good session for the long side of the market, but with our hedges and our money management system in place it will help protect our hard earned gains. Let’s see how this market turns out tomorrow.
