The line in the movie “Tommy Boy”, ” That’s going to leave a mark!” kept coming to mind throughout the trading day. Chris Farley was hit in the head with the sail boom on his boat after a wind came up to help him get back to shore. The humor for me is the context of the situation… he had gone out in the boat to talk with his dad who had passed away looking for guidance. Realizing he needed to get back to shore he asked his dad for a little help, up came the wind, and of course the boom then hit him in the head. Likewise, many investors have been asking for a little help on direction in the markets. Following Friday’s move the debate was on relative to the market selling lower. Well, as fate would have it, the wind picked up today and the boom swung around and hit a few investors in the head. Question is… do they listen to the prevailing winds or do they stand pat and wait for the next gust to blow us out of the boat? Either way today was of interest as the market took out the next level of support, erased the gains on the break above the 2063 level on the S&P 500 index and is now looking for the next support level. That could realistically be the 200 DMA. Only time will tell, and we all have to know what our plan is in order to act accordingly.
On the webinar last night I discussed the current conditions of the market from a trading perspective, (micro trend / 0-13 week timeline.) I set what the exit levels would/should be if you are still in trading positions. $206.11 was the exit for SPY (S&P 500 index ETF) if you didn’t take the $209 off ramp. We closed at $204.98 on the day or down 1.6% on the day. I am not a prophet, but I am a planner when it comes to risk management. Depending on where you took the on ramp for SPY (ours was $204) and thus the stop or off ramp at $209 was to close the trade at a profit after the upside move started to rollover last week. $210 was the ideal exit, but we gave it a little wiggle room to bounce back if the buyers were willing to step back in and resume the upside move. Planning is the key, waiting until the proverbial #%^&* hits the fan puts too much pressure on the decision making process and the side effect is we fail to act rationally.
The Volatility index jumped back to the 16.50 mark on the close today as well. This was another issue we have discussed relative to the rolling top formation on the S&P 500 index last week. The 200 DMA was 14.69 and a move through that level would be an additional warning for stocks… that was penetrated intraday last Wednesday as a warning for investors. It closed above that mark on Friday and Monday… thus more warnings to adjust stops and manage risk on trading positions. It also gave an opportunity to add a position in VXX with a move through the $27.40 mark. $29.32 is the next resistance point and we will obviously watch to see how volatile this becomes going forward.
Financials were the biggest loser on the day off 2.1%… After the solid bounce back on Monday? Yes, the move was a fake out as investors want to believe a interest rate hike by the Fed will be good for bank profits… However, the fear of what the rate hikes will do to the economy is a bigger concern. In fact, the Fed rate hike concerns relative to the economy was also enough to send yields on the thirty-year treasury bond down eight basis point to 2.71% or following from the high last Friday at 2.87% ordown sixteen basis points. The fear or anxiety about the economy is bigger than the fear of higher interest rates. Oh this is confusing… and rightfully so. Investor fear or anxiety about a slowing economy as a result of hiking interest rates is a bigger concern… plain and simple. Thus, we have two end working against the middle, like burning a candle at both ends. The emotions of investors are working from both sides of the this issue creating almost opposite reactions simultaneously. Bottom line… know where your exit points are… raise cash and look for the opportunities on the side where clarity will provided easier answers.
This brings us the question: how do we manage our portfolio in light of what is taking place? For the answer to that you will have to watch tonight video update… it is easier to show and talk about than spend an couple of hours writing a book on the possible actions… simply click below to watch my outlook going forward.