Europeans continue to dominate the headlines while the Shanghai Composite continues to strike new 52 week lows. News outlets continue to focus on the European markets and their debt situation while completely ignoring what is going on the mainland of China. Early morning futures were quite negative and the market action followed suit. Volume ran MUCH lower through the day while the VIX notched lackluster gains (perhaps a positive?). A late day surge brought the markets well off their lows of the session showing a bit of support overall. What could have been a disastrous day for the market turned out to be only to be slightly negative.
Two key takeaways from today’s market was the lack of volume on the downside and the fact the VIX couldn’t muster much of a rally. We all know Europe is a mess at the moment, but is the United States that bad? While we’ll get an answer to this question later by the markets it certainly seems there is a push to keep stock prices higher through the end of the year. It remains to be seen and while we remain in neutral mode we’ll be ready for a break to either side.
The real risk to you and your portfolio is the constant churn in the market. One way to avoid the chop is to simply sit on the sidelines. Unfortunately, many traders and investors find it hard to be away from the market. If you do run into a bad streak, make sure you reduce your position sizes in accordance to your account equity. If you have a drawn down in your account equity adjust down your position sizes. Until you begin making money again is when you begin to take on bigger position sizes. Remember, your number one job is not to lose money and capital preservation!
Tomorrow we’ll get a FOMC rate decision. It’ll be interesting to see how the market reacts to the Fed. Rumors are floating the central bank will need to pump another $1T into the market buying up US Treasury debt. Who else is going to soak up the $1.2T deficit we run each year? Most important thing to watch for is how the market reacts to the news. It could be tomorrow a buy or sell signal will be generated. Have a game plan and execute.
Cut those losses small!
