Flat. That is how I am positioned over the weekend. I see no edge in either direction at this juncture. The short term trend is down, but we are oversold based on some measures. This is a market for those that embrace volatility and not for those looking for longer term trends; therefore, quick one to two day trades make the most sense until a clear trend presents itself.
Last week in my What the F%^$ is Going on Here I wrote:
To simplify, the path of least resistance right now is down. Don’t over think it. Yes we will see bounces, especially when we get oversold, but until the path of least resistance turns back up, don’t use 2013′s playbook. This is no longer your 2013 BTFD market. This is your 2014 ‘failed breakout’ STFR market.
The same holds true for this upcoming shortened week (note Friday April 18th the market will be closed in observation of Good Friday). Earnings have just begun and they will help clarify the direction of the market or at the least individual stocks. Currently stocks are being sold indiscriminately and earnings will allow traders and investors the opportunity to deciphere where value truly exists.
Assessing the Current Situation:
Since the end of the first Fed induced Quantitive Easing (QE) program in March of 2010, all QE endings have been accompanied by volatility measured by the CBOE Market Volatility Index (VIX). Thus far, this latest tapering is proving no different, but also could go a lot further to match more closely the volatility levels reached in 2010 and 2011. 
We are considered oversold based on 20-day new lows on SPX, but still have room to become more oversold should we drop further. Furthermore, often the oversold readings need to see a couple spikes back-to-back before finding a bottom (denoted by red lines).
Similarly we are nearly at oversold readings based on SPX stocks above their 20-day moving average.
The SPX is hanging onto the its lower bollinger band (BB band), a place that often sees snap backs rally’s. However, although in 2013 the market rarely stayed at the bottom of its BB for too long, during a correction (versus the small pull-backs we have become accustomed to) the market can stay oversold dragging the BB band down with it as it did in February of this year and as it has done with the QQQ and IWM recently. Thus, it is not a reason to go long in and of itself. This last week the SPX has finally begun to show the weakness that has been exhibited for over a month in riskier asset classes such as the biotech and small cap sector.
After last weeks selling, it is becoming more probable that the SPX will drop to its 200 day moving average in the near term, which currently stands at 1761.43; however, bear in mind if it does happen it likely will not occur in one straight line down. 
A break of that double bottom on the QQQ‘s at 84.11 and we likely visit the 200-day MA currently at 82.6
The IWM closed slightly above the 200-day MA. If it fails to hold the next level of support is around 107.
The IBB, representing the Biotech index and emblematic of a risk-on environment, closed below the 200-day MA for the first time since 2012. The next level of support is around the 200 level.
A further breakout in the TLT would signal a continuation of a risk-off environment as investors flock to US Treasury bonds pushing yields lower: 
What to Look For When Determining Whether You Should BTFD or STFR Next Week
We will no doubt get a bounce at some point next week. The question is how do you know if it is just a bounce or if we have hit a short term bottom and a new upend will emerge and have staying power? Here are some signs to look for when searching for a bottom:
- A distributive day based on breadth indicators as well as extreme volume would give credence to potential capitulation.
- An up day that shows follow through and can sustain itself for more than two days.
- Money coming back into biotech’s as well as the nasdaq and small cap stocks.
- The TLT fading.
- VIX fading back below 14.
- A spike in the put/call ratio.
Not all of these variables have to exist, but the more that do the better the odds that a bottom is in before resuming a new uptrend.
The important thing to remember is that what worked in 2013 is not working this year. If you have not yet adapted your trading strategy you are likely struggling, but can change that. During the current backdrop, the best trading strategy is to either stay in cash until a less volatile market presents itself or to trade tactically and not overstay your welcome in any one trade. As I mentioned last week, the short term trend is down, but the bigger picture is a healthy consolidation period after a five year bull run.
Weekly View of SPX from 2009. 
If you are looking for guidance, education and real time trade alerts you may be interested in subscribing.
Good next next week.
A Bounce to Sell Into or Capitulation Next Week?
Flat. That is how I am positioned over the weekend. I see no edge in either direction at this juncture. The short term trend is down, but we are oversold based on some measures. This is a market for those that embrace volatility and not for those looking for longer term trends; therefore, quick one to two day trades make the most sense until a clear trend presents itself.
Last week in my What the F%^$ is Going on Here I wrote:
To simplify, the path of least resistance right now is down. Don’t over think it. Yes we will see bounces, especially when we get oversold, but until the path of least resistance turns back up, don’t use 2013′s playbook. This is no longer your 2013 BTFD market. This is your 2014 ‘failed breakout’ STFR market.
The same holds true for this upcoming shortened week (note Friday April 18th the market will be closed in observation of Good Friday). Earnings have just begun and they will help clarify the direction of the market or at the least individual stocks. Currently stocks are being sold indiscriminately and earnings will allow traders and investors the opportunity to deciphere where value truly exists.
Assessing the Current Situation:
Since the end of the first Fed induced Quantitive Easing (QE) program in March of 2010, all QE endings have been accompanied by volatility measured by the CBOE Market Volatility Index (VIX). Thus far, this latest tapering is proving no different, but also could go a lot further to match more closely the volatility levels reached in 2010 and 2011.
We are considered oversold based on 20-day new lows on SPX, but still have room to become more oversold should we drop further. Furthermore, often the oversold readings need to see a couple spikes back-to-back before finding a bottom (denoted by red lines).
Similarly we are nearly at oversold readings based on SPX stocks above their 20-day moving average.
The SPX is hanging onto the its lower bollinger band (BB band), a place that often sees snap backs rally’s. However, although in 2013 the market rarely stayed at the bottom of its BB for too long, during a correction (versus the small pull-backs we have become accustomed to) the market can stay oversold dragging the BB band down with it as it did in February of this year and as it has done with the QQQ and IWM recently. Thus, it is not a reason to go long in and of itself. This last week the SPX has finally begun to show the weakness that has been exhibited for over a month in riskier asset classes such as the biotech and small cap sector.
After last weeks selling, it is becoming more probable that the SPX will drop to its 200 day moving average in the near term, which currently stands at 1761.43; however, bear in mind if it does happen it likely will not occur in one straight line down.
A break of that double bottom on the QQQ‘s at 84.11 and we likely visit the 200-day MA currently at 82.6
The IWM closed slightly above the 200-day MA. If it fails to hold the next level of support is around 107.
The IBB, representing the Biotech index and emblematic of a risk-on environment, closed below the 200-day MA for the first time since 2012. The next level of support is around the 200 level.
A further breakout in the TLT would signal a continuation of a risk-off environment as investors flock to US Treasury bonds pushing yields lower:
What to Look For When Determining Whether You Should BTFD or STFR Next Week
We will no doubt get a bounce at some point next week. The question is how do you know if it is just a bounce or if we have hit a short term bottom and a new upend will emerge and have staying power? Here are some signs to look for when searching for a bottom:
Not all of these variables have to exist, but the more that do the better the odds that a bottom is in before resuming a new uptrend.
The important thing to remember is that what worked in 2013 is not working this year. If you have not yet adapted your trading strategy you are likely struggling, but can change that. During the current backdrop, the best trading strategy is to either stay in cash until a less volatile market presents itself or to trade tactically and not overstay your welcome in any one trade. As I mentioned last week, the short term trend is down, but the bigger picture is a healthy consolidation period after a five year bull run.
Weekly View of SPX from 2009.
If you are looking for guidance, education and real time trade alerts you may be interested in subscribing.
Good next next week.
Share this: