A brutal day in the markets triggering many people’s stops and signalling an abrupt end to the recent bull run.
This particular chop has the feel of being short and sharp, but may indeed herald a more pronounced retreat from the new highs recently formed.
If you’ve found yourself on the wrong side of bullish trades – as I have in a couple of trades – do not panic. For a start, the individual trades should not have formed a major part of your overall trading capital, and drawdowns (even losses) are part and parcell of any trading portfolio from time to time.
This is the market in action. Most of the time we’re on the right side (or no side) of it. Occasionally we get a bit roughed up by it.
In the language of chart patterns this could be the head forming of a yet-to-be completed head and shoulders pattern for the S&P.
SPY
The previously bullish-looking Nasdaq (QQQ) lost 1.7% today and left many trailing in its wake.
TXN
For those of you who shorted TXN recently, today was nice! The OVI has been heralding it for a while and some of you shorted below $39.40. TXN’s OVI has been negative during the last couple of months while the stock climbed.
Of the other bullish stocks I mentioned last time, CHK held up pretty well, but Ford tanked and needs to recover its poise.
Of the bears, IBM has done what it should have done and broke its bear flag support.
The financials had a bad day and VZ continued to creep down.
X is down a touch but still in striking distance to its resistance below $20 and XOM is a no-go zone.
So, this is one of those days that most folks will be feeling some pain – that includes me. There may be some more pain to come. Various commentators have spoken of a 20% correction. This would not be a surprise to me, but in any case we’re in for higher volatility. If we do get a correction of this nature, we’ll largely be out of the markets (or short) anyway, and it will be the precursor to a decent run after.
If you’re following a system with a part of your portfolio, chances are that it’s been nasty for you today. That will happen from time to time. If you’re trading by your wits or with your own discretion this is one of those days that would have tight stops stopped out.
So, don’t panic. It’s ugly if you’ve been long and are nursing some losses or drawdowns, but trading is all about playing the odds, and inevitably sometimes you’ll be on the wrong side. My method has me on the right side more often than not, and my average winners are bigger than my average losers. So, over time we should continue to win out, and in the meantime we just need to be patient.
Luckily, only a small part of your portfolio should be adversely affected by this downdraft.
More soon.
All the best
Guy