Dangerous Game

Image source: MSnbc

The marked bounced on Tuesday but based on the magnitude of the recent slide, it appears to be just that—a bounce.

Bonds continued lower to close at multi-year lows

Gold also closed right at multi-year lows. As I have been saying, when you see gold go down with everything else it suggests a liquidation type market–see recent newsletters.

Most sectors remain in downtrends. What’s concerning is that recently stronger areas like insurance have now begun to roll over. This is why it is dangerous to play the high relative strength game (i.e. buy stronger areas) when the overall market remains questionable. See yesterday’s newsletter (https://www.davelandry.com/the-tide-is-falling-should-you-jump-ships/)

So, even with Tuesday’s bounce, not much changes. So far, the indices, most sectors, bonds, gold, you name it, remains in downtrends or questionable at best. The longer the market remains below the 50 day moving average 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 (still) need a massive rally, and quick.

So what do we do? Keep an eye out for new shorts but you might want to wait for the market to bounce from oversold before establishing new positions. Avoid the long side for now unless you really like a setup and think it can trade contra to the overall market. 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