THE MARKET DOESN'T LIKE UNCERTAINTY

The market sold off today on continued fears that a debt ceiling resolution might not be reached by the August 2nd deadline. Although most traders feel that a resolution will be reached, they are forced to raise their cash in case a compromise isn't reached in time. Remember...these big institutional investors can't sell out of everything in one day if an agreement isn't reached. It looks like some are lightening up on their positions...just in case. The strength of today's selling did show that there is also active short selling going on. This could lead to a short squeeze when the debt ceiling resolution is reached. There might be a short term bullish trading opportunity as we near the August 2nd deadline...maybe Friday or Monday. The current move down looks like a possible "C" wave of a bullish ABC pattern, but the 1296 support area would likely need to hold. Usually when the market closes at the lows of the day (on a big down day), it tends to move lower. Since it had already moved down on Monday and Tuesday, it could mark some downside capitulation which could lead to a rally. In the short term, the market is very oversold. If you aren't already in your bearish trades, you shouldn't try to chase it here. SLV had another bearish engulfing pattern today. I think the uncertainty of the debt ceiling is the only thing holding it up. If it doesn't start dropping tomorrow, it will likely start as soon as the resolution is reached. The VIX made a huge move up at the end of the day. It makes sense. Many institutional investors are forced now to protect their positions in the face of this uncertainty. An aggressive trade here is to buy puts on the VIX or the VXX. The VIX could move a bit higher in the next day or two, but it will likely drop dramatically when the agreement is reached. This creates a low risk high reward trading opportunity. Since the market is also oversold in the short term, I also like a calls on the SPY, puts on the VIX type of a trade. I know there is a possibility that an agreement won't be reached and that we will then have economic Armageddon, but I think that is a low probability outcome. I think the market is set up right now for this to be an "easy money" type of trade. This doesn't mean we bet the farm on it (you can never ignore proper money management)...but it does mean that it might be a high probability trade.