The Tide Is Falling–Should You Jump Ships?

The market finished off its worst levels but was still down over 1% nonetheless.

Most sectors continue to bang out new lows. What’s concerning is that previously strong areas like Defense and Insurance are now beginning to break down. A falling tide sinks all ships. This is why I’m not a big fan of trading high relative strength stocks when the overall market is in trouble. As I wrote in Layman’s, there is not always a bull market somewhere.

The long bond ended slightly higher but the short bond continued to slide. Bonds remain in a serious downtrend but are oversold and due to bounce.

Anything interest rate sensitive remains in a free-fall.

Gold ended lower and is just off of multi-year lows. This action suggests a liquidation type market–see recent newsletters.

All of the major indices remain below their 50-day moving averages. Yet again, there’s nothing magical about “da fidy” but it is well watched and worth watching. Also, in general, it will help to keep you on the right side of the market.

The longer the market remains below da fidy and below overhead supply (the recent consolidation), the more pressure will be put on those to exit. If the market comes right back, then the buy and hope crowd will be rewarded and will continue to sit on their hands. So, we need a massive rally, and quick.

So what do we do? Nothing changes. It is too late in the current short-term cycle to establish new shorts. Manage existing shorts. Take partial profits as offered and trail your stops lower. Honor your stops on existing longs. Yet again, letting the ebb and flow of money management and portfolio management can help to keep you on the right side of the market/in the right issues—especially in questionable conditions.

Futures are strong pre-market.

Best of luck with your trading today!

Dave