FOMC meeting minutes failed to inspire buyers to continue supporting a massive run in the market. We certainly expected the market to pull in and today wasn’t all that atrocious as it could have been given we have moved so far in very little time. Volatility jumped above 15 as options expiry approaches. Fear doesn’t appear to be wide spread. Volume on the exchanges jumped giving the market a distribution day. At this point, today’s pullback appears to be a natural reaction to the recent run up and nothing sinister. Things may change and we’ll continue to monitor our overall trading process. We remain in an uptrend and continue to manage our risk profile.
Last week we pointed to the moves being made by commodities and how it could be indicating inflation is upon us. Crude now sports a 103 handle and others continue to rise along with the commodity. DBA reached levels not seen since last March while DBC is approaching last summer’s levels. Inflation without wage inflation will do quite a bit of damage to the pockets of those who do not own assets. Stocks tend to be a great hedge against inflation and while we have yet to see inflation it could be an added benefit we may reap over the next few months. Even coffee (JO) blasted higher. Rising prices will simply squeeze the middle class and poor. Now, whether or not it hampers this rally we’ll let price let us know.
The most important thing you can do here is manage your position sizing and obeying price signals. We can dig into attribution and overloading in a sector, but if you simply manage position sizing and obeying price signals you will come out on top. Many times traders will enter into a trade without regard to trade size and/or exits. If you don’t know how much, when to add, when to exit you should not be entering into a trade. Have a plan and execute accordingly. Do not let your emotions get the best of you or allow you to think you know more than the market itslef. Use the system as it is intended.
We continue to push towards Friday’s option expiry and operate in an uptrend. Until we have enough evidence otherwise we’ll stick with this trend.
