The day before options expiry traders took to selling as volume rose across the board. NYSE volume was still below average, but the NASDAQ finished near its 50dma. We continue to see stocks fixated on the US Dollar as every move creates a ripple effect in stocks. The market did receive support at the end of the day relieving the selling pressure but it fell short of closing in the upper range. Even with the last half hour surge the market was unable to avoid professional selling.
This market has proven once again it is far too risky to get either too long or too short. It has proven if you had bought and held from the spring time you’d be sitting pretty with gains. However, given the market conditions it was tremendously difficult to buy stocks who had been hit hard in the downtrend. The market is the most efficient mechanism to price assets and so far it has proven to be a difficult one for many to deal with. If you are having difficulties with this market, you aren’t alone as we have seen many professionals feel pain from this market.
Taking a look at some indicators like the McClellan we can see we aren’t oversold, but in the middle ground. I have posted these before warning we had breached into extreme oversold area and it was too obvious to go short. What the McClellan is indicating now is to be very cautious and protect any downside risk whether your are long or short. It is always wise to have tight cut losses, but it is even more important now as the market may swing violently in either direction.
You can certainly make a case for the market to head lower from here, but judging by the McClellan for both NYSE and NASDAQ there may not be that much downside.
Another intriguing observation is a Point and Figure chart of the VIX index. It is currently showing a bullish price objective of 52.00 suggesting stock prices should fall. A move to 52.00 would certainly mean a decent if not worse correction in our future. We aren’t into predicting here at Big Wave Trading, but it is good to keep your eyes pealed. I may remind you these price objectives are merely illustrations of what might happen as I point out in the chart a level where the price objective is negated.
Point and figure charts are an old school way of looking at price action. Moving onto a daily chart of the VIX you’ll notice today’s candle isn’t exactly one that would suggest the VIX would move higher.
Again, we are getting clear signals from the market and we are ready for anything. Keep in mind the most important thing to remember is how your individual stocks are acting. If you are holding onto a stock who appears to be struggling do not hesitate to trim your position size or the position completely. In the end, its about your stocks and how they are acting.
Remember, always protect your downside as this is your insurance policy.
