Based on my take on where we are in the bigger picture (the early to mid stages of a significant correction with more downside to come), my expectation is that the selling should begin to accelerate soon, most likely heading into next week. Of course I’ve been wrong before & will be wrong again but just wanted to share my thoughts and my current positioning.
As things have been playing out as expected so far and as such, will likely continue to do so, I’ve added some more short exposure today in order to go home with a substantial net short position over the 3-day weekend. My positioning remains short equities with long positions in all the recently posted high-yielding stocks and even some bond exposure (the latter in longer-term accounts such as IRA’s). I’m still out of all precious & industrial metals and the related mining stocks for now as I feel they may need a little more time to digest the recent gains. Maybe, maybe not but I’d rather miss a move than try to force a trade when the R/R is not very well defined.
If the 60 minute SPY chart (above) continues to play out as expected (so far, we have seen just a minor reaction off S1 with the bounce terminating at R1), then a break below Wednesday’s low of 163.05 will likely be a point of recognition for the bulls & those conditioned to buy every dip that something is not right this time around as the SPY was only able to mount a meager 1.2% bounce when the index hit key support with positive divergences (60 minute frame) in place at the lows on Wednesday. Throughout most of 2013, such a combination of factors would have typically resulted in a much larger & impulsive move. Again, maybe my read is incorrect so as always, DYODD and always trade based on your own analysis and trading style.
I do plan to update the trade ideas over the weekend, possibly removing some long trades as well as some short trades that have either exceeded their suggested (or any reasonable) stops in order to make room for some new trade ideas on my radar. Until then, feel free to contact me with any questions regarding any of the active trades on the site. Irrespective of the fairly decent move down in the broad markets since the highs earlier this month, I continue to believe that the R/R for longs is not favorable at this time (other than select trades such as the select bond & dividend stocks mentioned). Whether long or short right now, make sure to use stops that are commensurate with your own unique risk tolerance and trading style.