Futures are indicating a painful open for bulls as renewed fears regarding China-US relations. Europe is suffering the same at this point. The Shanghai fell 1.65% while Hong Kong shares fell nearly 3% during the overnight session. Stocks have done nothing but fall since the FOMC announced its rate decision and Monday appears to be no different. At some point we’ll reach a point where the market gets too oversold and we see a bounce. There is no telling if Monday is the day or we just continue lower. Why we always stress to have a solid handle on your risk management process. Right sized positions with proper exits is the only way to survive in this market. Otherwise, you are exposing yourself to unnecessary risk. Let’s see how Monday unfolds.
Last week we had a bunch of new inverse ETF positions trigger. It is looking like Monday’s opening will be rough for those who stayed long and strong. These positions are not meant to be held for the long-term. Just look at their charts and you can see time decay really destroys the value of these trading instruments. They are not meant to be a long-term position by any stretch of the imagination. Of course, on a day like Monday they will appear attractive. However, held over a long period of time history shows you will lose a lot of money. Be quick and nimble with these trades as we have mentioned gains can evaporate quickly and losses pile up even faster.
Something to pay attention to today will be how high the Put/Call ratio gets. Will there be any panic by traders and investors? Money continues to flow into Bonds as the 10-year Treasury Bill is not under 1.8%. Will bonds continue to see money piling in? It would not surprise us to see a mass exodus from US Equity Mutual Funds either. Even the NAAIM Exposure index the last two weeks was above 90 showing active managers were nearly all-in on stocks. Was this obvious last week? Perhaps, and why we saw many inverse ETFs trigger new signals. We wish we were that smart, but we are simply following our trading process. For all we know today will market a short-term bottom. We’ll follow price wherever it wants to take us.
The start of August as certainly been interesting. Let’s see how this week unfolds. We hope you had a fantastic weekend. Time to get to work.
