An ugly day to start the holiday shortened week. Volume was lower across the board, but price declines cut deep. The NASDAQ Composite index fell more than 3% on the session as AAPL and AMZN continue their declining price trend. We do have a holiday shortened week and trading will be a bit erratic as we inch closer to the market close on Thursday and a shortened session on Friday. October’s low is in focus now and will be an important pivot point for this market. If we are to sell thru October’s low it wouldn’t surprise us to see a rush of sellers. At this point we are going to look for any signs of capitulation by those who are still long this market. This market is still quite dangerous for those who are long. We will be patient and wait for clearer skies before we get invested heavily on the long side of the market.
A key point to remember is we are not the likes of Warren Buffett or a large institution. We have the ability to move in and out of the market rather quickly. This is an advantage we must use in order to grow our accounts faster than simply buying and holding. Cutting losses is critical in this game and we cannot afford to have large losses. Too often we see traders go in with too large of a position size and/or cutting losses when it is too late. Knowing your position size as well as your exit is vital for survival and your ability to thrive in any market. Right now, we have a very dangerous market.
Tuesday’s market action will be interesting to watch. The major market averages will see the “death cross” very soon and further selling will help accelerate the event. We will see at some point a snap back rally and it would not be out of the ordinary if the market would find some sort of floor once the 50-day moving average crosses under the 200-day of the major averages. We have already seen this from the Russell 2000. The NASDAQ and S&P 500 are very close and it will get very interesting when the event occurs.
We know AAPL and AMZN are struggling, but FB is in a large decline. Facebook’s messenger app went down worldwide yesterday and it did not help the stock. Sellers have been pounding the stock lower and it appears not much will stop it. Who would have thought the prettiest out of the ugly social stock bunch would be TWTR at this point? NFLX is at an inflection point where it is about to crack wide open. I would not want to be involved on the long side. FANG stocks have been beaten and the pain train looks to continue.
We will get greener pastures when the time comes. Right now, we need to make sure we have some dry powder available to us whenever the market is ready for a viable up trend. Tread carefully and enjoy the ride.
