I'm not ready to call this a free fall, but we are definitely selling off. This shouldn't be much of a surprise. We talked last week of being near resistance and the need of reducing risk exposure to the market. This selling should continue tomorrow. Remember what I said last week...if the selling was controlled, it would be viewed as a bullish pullback...if selling was panic selling, we could drop a lot further. The volume wasn't outrageously high, but the VIX did spike up today (over 5 points!) indicating an increase of fear in the marketplace. I would look to DOW 7450 and SPX 805 as the next support levels to watch. You could look for bearish trading opportunities in the next few days, but don't chase the drop. If we gap down significantly at the market open tomorrow, don't jump in. Wait for a rally, then play the next move down. There might be some nice short term bearish opportunities in the financials this week. They have been up the most during this bullish run, which means that they have the most to drop when the market corrects. The short sellers aren't ready to give up their grip on these stocks so they might be able to push them down further over the next few days. If they can't (and the financials rally back in the next few days), we could have another strong run due the the short sellers getting squeezed again. Be careful about looking to Straddles or Strangles as a solution to this uncertainty. The volatility spiked up today across the board, thus lowering the probability of these trades working right now. You could also look for this expected pullback as an opportunity to get into some of those strong uptrending stocks, but you might need to be patient and let them sell off a bit more.
No comments:
Post a Comment