And it finally gets interesting. It has been such an amazing winter on Maui this year with all of the amazing surf and whale action that the slow methodical uptrend has been a side-feature to a much more impressive show by mother nature. However, the stock market has finally decided to grab my attention with Thursday and Friday rocking the solid foundation that this uptrend has had.
Thursday was a negative session for sure but the solid intraday reversal gave the bulls hope that the selling was possibly abating. All of those hopes were dashed on the rocks of assumptions on Friday with all of the major market indexes and all of their respective ETFs, inverse ETFs, leveraged ETFs, and inverse leveraged ETFs selling off on extremely strong volume with ugly price breaks. On top of that, we were hit with full sell signals on many of our most recent long positions. Even worse, some of our big winners in the short-term gave back significant gains previously collected on paper.
Due to all of this poor action, our market models are switching to NEUTRAL across the board and now have a significantly bearish bias in our model. This means it is possible we will switch to a SELL mode with just a little further selling. We already have tons of churning and distribution days mounting on the Nasdaq and SP-500. So a quicker than usual change should occur here, especially if we continue to have long positions knocked out by moving average violation sell signals.
Still there was a ton of fear on Friday with the VIX jumping 30% in one day and it is always possible that we have seen the lows as it did get ugly pretty fast. However, based on history a big crack like this, following a slow uptrend, usually has further to go. How much further? 5%? 10%? 20%? Uhm, nobody knows. It doesn’t matter what you think or who you think knows but they don’t and they can not because it is impossible to predict the future. That is just facts. There is no magic in the world of physics and that is how the universe works. So keep an open mind. Anything can and will happen.
Unfortunately, coming into Friday we were 95% long but we have been fully invested in equities for months now. So it was just a hack into the recent gains. From here on out, we will begin hedging with leveraged ETFs to get some Beta on the downside if the selling persist. If we continue to sell off we will add to our hedge with our remain capital, reduce our long positions, and decrease the size of any new potential long signals. This will continue until the market can gain some kind of uptrend traction. It is also possible the market will get choppy here and if that is the case our cash position will rise significantly. No matter what happens, we have a plan. This is how you must always trade.
The big surf, epic conditions, and whale activity continues to be absolutely amazing on the island of Maui. The stock market now has my attention but I still understand what is truly more important in life and will continue to focus on that until the action subsides. While stocks might still not be up the surf still is. Aloha.
TOP CURRENT HOLDINGS – PERCENT GAIN SINCE SIGNAL DATE – DATE OF SIGNAL
DUE TO TIME CONSTRAINTS THIS SECTION WILL NOT BE UPDATED THIS WEEKEND
