Going on Sale

Stocks are going on sale!  I have been expressing concern over the last few weeks that fewer and fewer stocks were holding the market up.  I have mentioned several times over the last several of months about a rotation into defensive sector stocks as well.  Consequently, I have been expecting a pullback in the market, but I admit to being completely surprised by the panic and the magnitude of the selling we experienced yesterday!

The best move for most swing traders is to stand aside and let it happen while keeping your capital safety tucked away in your account.  Technical damage like this will take a long time to repair, and the fast price action and high volatility will make profiting very challenging even for the most experienced traders.  As bad as it may seem at the moment keep in mind that this is a good thing.  Stocks are going on sale and if we patiently wait there will eventually be great deals for us when it’s over.

On the Calendar

A busy Thursday on the Economic Calendar but with a major selloff underway, I’m not sure anyone will pay much attention to the details. Possible market moving reports are, 8:30 AM Eastern CPI & Jobless Claims, Natural Gas Report at 10:30 AM, Petroleum Status Report at 11:00 AM, Treasury Budget at 2:00 PM and the Fed Balance Sheet at 4:30 PM.  There are also four Bond Events between 11:00 AM and 1:00 PM ant the Money Supply report at 4:30 PM.

On the Earnings Calendar, we have 12 companies reporting.  Most notable are DAL and WBA which both report before the bell.

Action Plan

I said yesterday that a test of recent lows was not out of the question but holy cow I didn’t expect it would trigger such a massive run for the door.  The VIX pretty much says it all having spiked 43.95% yesterday as fear turned to outright panic.  The selling spread around the world like wildfire as Asian markets plunged and European markets sharply lower this morning.  The pain continues this morning with US Futures pointing to gap down of more than 200 Dow points at the open.

So what is a retail trader to do in the midst of such technical damage?  The only thing we can do, protect your capital and let it happen!  Don’t fight it, and don’t try to predict it or your likely to have you’re head handed to you!  The implied volatility increase in options will make them very challenging to trade.  Market Makers will widen the bid/ask spreads and when a rally does occur I the IV will collapse making it very difficult to profit even if you are exactly right on direction and timing.  The good news is selling of this magnitude will likely get at least this first leg of the correction over soon.  Unfortunately, extremely high volatility is likely here to stay for the near future.

Trade Wisely,

Doug