“Katie, bar the door!”
Well, I could see it coming even as early as middle of last week…I even remarked that it was too late because as one pulls out the earliest readings of the 20 day mov avg line, it only got worse!
The 20-100 cross occurred on Friday on the S&P…not a well-known cross and rarely ever mentioned by talking heads, but ONE that I have followed closely over the past several years….I find it is an important signal in many back-tests. In 1987’s crash, anyone exiting the markets upon this cross would have gotten out within about 12% of the top, as I recall. In ’87, if they waited for the death cross, they would have been down about 25% as I recall (round numbers here…someone can do the research to find more accurate numbers).
Well, here we area again, perhaps? We are down about 11% from the top, and we have the 20-100 cross! The angle is steep this time, like in 1987…whereas the one in February was a shallow angle… and note the difference in the MACD between February’s cross and today’s cross!
I have been fighting this development every step of the way…always seeing a glimmer or light in my charts that say it is not that bad, and today’s Birinyi Poll gave me hope that the Bears will soon be short-squeezed, but that cannot happen without a strong catalyst, and right now, I’m not seeing it.
As I remarked about 3:00 ET today, I cashed out 2 more positions….XXX and XXXX (except the call options)….I am thinking of holding my LT positions in stocks like (stock symbols removed for the benefit of our PAID subscribers) and a couple others with more SH. My LT positions are with a Full Service broker–a long time friend of the family…I make trades rarely in that account. They do not allow me to use levered ETFs, so I added SH (not levered, 1x short the S&P) several weeks ago as insurance…am thinking I may just double the position tomorrow. It is easier to just add more SH than tell the broker to sell everything which incurs many more commissions (this guys commissions make discount broker fees look like a walk in the park!)….
Also, looking at pulling back on my mutual funds in 2 retirement accounts that are really LT accounts where I make perhaps a half dozen moves a year. One of those accounts is 50% mutual funds and the rest in cash equivalents or bonds (corporate as well as treasuries)…and the other account in about 75% cash now.
In my two trading accounts which are the ones I refer to most often on this board, I am already about 65% cash–I was only about 25% cash back on April 26th when I first spotted the early signs of a correction with my 5-15 VIX chart.
Now, I’m thinking of putting in a couple of shorts tomorrow to enhance my returns.
So, am I saying the Bull Market is dead? Not quite, but it has gotten quite dangerous, I’m afraid.
I think it’s possible we can find a bounce or two along the way, but the quants’ algorithms are programmed as such that they will sell into the bounces, I believe. It will take some very good news to overcome the trading programs of the quants…in other words, a human being or two who controls large amounts of cash will have to step in and battle the quants…and I don’t see any reason for that to occur right at this time.
I’m not really shorting much at the moment (partly because I took profits on shorts last week), but I think this correction may go the maximum 20% down from the top…not the original 10% I thought we might see…and if it gets worse than that, then I will rest easy knowing I have the majority of my money out of harm’s way…
It’s not the time to be a hero for us small guys…leave it up to the BIG FUNDS to fight this battle and show us which way they want to go! Me? I just want to be scrappy enough to grab a few nice trades out of all this volatility that we now must endure!