After posting decent gains on Monday the market followed up with selling on Tuesday. Volume was high enough on the NASDAQ notching its 5th day of distribution over recent weeks. Given distribution is piling up on the NASDAQ it does give some pause to whether the dominance the NASDAQ has shown will continue. On the other hand, we have the Dow and S&P 500 which appear to be holding up rather well since the NASDAQ began to stumble. Small caps lead the decline today, but remains in okay shape for now. We do have a few hedges going up at the open to protect from any further downside if a new downtrend begins. No one knows for sure, but the NASDAQ appears to be stumbling a bit more than usual. It is best to watch your stocks and react accordingly.
The resiliency this uptrend has shown is certainly being tested here and now. We may very well be witnessing another round of rotation. We will know soon enough and the key to your success is whether you will be patient enough rather than act on impulse. Too many traders will simply go on their gut only to find out quickly they had made a mistake. Compounding further they let the mistake continue rather than reversing course. Do not make the same mistake. Follow sound rules tested over time like Big Wave Trading’s rules. They are rules for a reason and they are time tested. We have been around since 2007 and have lasted because we have solid, sound rules. We do not trade on impulse and hope it works out for us. A sound money management process anchored by cutting our losses quickly have been proven to be the keys to our success.
As of 6:30am EDT futures are lower, but modestly. We are certainly not, now going to open down more than 1% on any of the major market averages. Our key lows, last week and the week before are still intact. We would expect these to hold if we are to continue higher. There are a lot of scenarios that may play out for the rest of the week, but we will simply react to them as they come. There is no use trying to lay out every possible scenario. It would be a shame to waste all that time for nothing. Sit back and trade according to your plan.
One key event this week will be the rebalance of the Russell indexes. Volume will be through the roof on Friday at the closing bell. Portfolio managers, for those benchmarked to Russell indexes will be adjusting their portfolios ensuring they have proper tracking error and position sizes. It will be interesting to see how the Russell indexes perform over this next week.
We wish you the best of luck and hope to see you in our chat room!
