In oxymoron terms, it was a pretty ugly day.
In Trend Following Moron terms, the market only appears to be correcting.
Let’s look at the scoreboard.
The Ps lost just over 1 ¼%. This action puts them right back to the top of its prior trading range, circa 1810-15. There’s nothing magical about the 50-day moving average but it is worth watching and it has caught up to prior support, circa 1800. It wouldn’t be a sell signal if the market dropped to or below 1800, but it certainly would be an area of concern.
The Quack was hit even harder. It lost nearly 1 ½%. This action puts it back to minor support, circa 4100. 4,000 would be the next support level here which is just below the 50-day moving average.
The selloff was broad based as evidenced by the Rusty. It was down over 1 1/3%.
With the notable exception of Gold & Silver (you’re welcome!), there was no place to run and no place to hide. Virtually all sectors ended lower.
In addition to Gold & Silver rallying, it was good to see bonds higher. This action suggests that it was not a complete liquidation type of market.
The weak and questionable got weaker and more questionable. Energies were hit hard. They appear to be breaking down. Retail sold off hard too. Department Stores were hit especially hard here. Overall the sector remains sideways (at best). Any additional weakness would be concerning.
Okay, that’s the ugly. The good is that most areas remain in longer-term uptrends and so far, most only appear to be pulling back.
It seems that even the slightest of spills has the bears coming out of the woodwork. They are citing wave and bar counts, baby with poopy diaper candle patterns, January seasonal patterns, you name it. This is a good thing–the more the merrier. If the market turns right back up, they will get squeezed and this will help push our positions down the road.
So what do we do? Now that the market is pulling back, look for ways to get aboard the longer-term uptrend. Watch stronger areas for pullbacks. Then, enter if, and only if, the trend begins to resume. In other words, wait for entries. This, in and of itself, can often keep you out of new trouble. Yesterday, for instance, nothing triggered as the market slid. On existing longs, honor your stops just in case. I would avoid the short side for now unless you really really like a setup. If Monday’s action turns into something bigger, we should have plenty enough time to add to the short side—especially with the market coming off such high levels.
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