With Friday's breakdown below the recent sideways trading range coupled with a 40% surge in the $VIX (CBOE Market Volatility Index), it would be fairly reasonable to expect continued volatility going forward this week & quite possibly leading up to and immediately following the FOMC rate decision announcement on next Wednesday, Sept 21st.
As last night's U.S. Equity Market Outlook video was fairly comprehensive, covering both the near-term & intermediate-term likely scenarios along with some key support & resistance levels to watch, I plan to spend a good part of the day posting updates on existing trade ideas as well as any new trade ideas that stand out at this time. Pasted below are some of my replies to questions yesterday & this morning that help to expand on my thoughts & current trading plan at this time:
In response to what my thoughts are this morning before the market opens:
My thoughts are this: As I type (8:23am EST), the market is poised for a relatively mild gap lower, after recovering a good part of the overnight losses on the futures. Until & unless QQQ can climb back above the bottom of Friday’s gap, I view any bounce back up towards the 116 area as an objective level to add or initiate short exposure but that is generally speaking as individual stocks are best shorted or added to an existing short on either bounces back to their own resistance levels or a breakdown of key support levels just as the stops, or entries for that matter, on any longs should be determined by their own chart although the risk of long-side breakouts failing is increased at this time.
If one was trading the Q’s, for example, they could add short exposure anywhere from about the 115 level to as high as the 116.50 level with s stop not too far above the top of Friday’s gap/Thursday’s close. The GDX/NUGT short still looks fine with the next objective short entry or add-on to come on a break below Thursday’s lows. The fact that gold did not receive a flight-to-safety bid during or since Friday’s sell-off on helps to strengthen the near-term bearish case. Other than than, like I said, each individual stock, long or short, has it’s own unique technical posture with some, like the SMH/SOXL short trade, having a much higher correlation to the broad market than others, such as the fertilizer stocks or the ACBFF (cannabis stock) longs. I will plan to post updates today on any active trade ideas in need of one.
Some statistic passed along to me by a member of the site, followed by my reply:
Enjoyed your video today! Just wanted to share with you some data on NDX which I find very interesting and signifies an important top in this index.
1- From 8/25/2015-12/2/2015 NDX rose 952 points for a 25.13% increase in 68 trading days.
2- From 12/2/2015-2/9/2016 NDX corrected 850 points for a 17.93% correction in 47 trading days.
3- From 2/9/2016-9/7/2016 NDX rose 951 points for a 24.42% increase in 145 trading days.( This makes me feel NDX has reached a significant top recently)
4- The question now is: How much correction over what period of time?
While I always say that nothing is 100% accurate (in predicting where prices are headed) in technical analysis , not even close, I have to say that to me, the bigger question isn’t so much: “if we get a correction, how big will it be?”, more so “are were about to embark on a correction or a new bear market?”.
Assuming we get a correction (i.e.- a drop of 10%+), that will do a considerable amount of damage to the long-term charts, quite possibly flipping most or all of the long-term trend indicators from bullish to bearish. Being that we are now 7.5 years into the second longest bull market in history, statistically the odds favor that the next time all of the long-term indicators flip to bearish, it won’t end up being a whipsaw signal, rather confirmation that a new bear market is well underway.
Back to your question, while we can make some rough projections at this time as to how far the next big drop in the market will go, whether it has just kicked off or not, we’ll need to see how the charts (technicals) as well as fundamental data unfold going forward in order to help ascertain just how long & far the move down might be.
Q: Randy, do you recommend closing out the GDX short the day before the FOMC meeting (given that the targets arent hit), or reducing exposure? I have been burned numerous times by these meetings, what are your thoughts? And have a great weekend.
FOMC announcement too far away for me to make the decision to proactively close out any GDX short before the announcement, assuming I’m still in the trade. Assuming that I am, it would depend on the charts. For example, let’s say that GDX is fairly close to one of my profit target while there is some potential divergence setting up on one of the intraday time frames, such as the 15, 30 or 60-minute charts, then I would probably close it out to avoid getting caught on the wrong side of a post-FOMC induced rip. Feel free to run the question by me again early that week (Monday or Tue Sept 19/20th) if GDX/NUGT is still an active short or if you short at the time if not.