Futures getting rolled this morning as the market sets to open lower due to economic weakness overseas. Investors also anticipating a weak housing number. Oil itself is still experienceing some weakness. Gold had a light pullback yesterday and is looking a bit weak this morning. This is to be expected after such a huge run. Often a light pullback like this will serve as a catalyst to another run. The action in the market is very weak. It lacks participants and any conviction either way. We are just drip dripping our way lower. The SPY finished yesterday for the third day in a row lower than it opened which is never a good sign.
Looks like we are gonna open below SPY 106 which was a bounce point I had been watching. Next stop would be the 104 zone. As we’ve said before this is an enivironment where min 50% cash should be in the accounts and we trade with smaller sizes. A big cash position does a few things. One its a hedge against huge market falls as a 4 percent drop really is only a 2% in your account. Same thing when your position sizes are 1/2 the size. a 10% drop is really 5% hence the hedge. The second is that when the market experiences weakness like this we have seen powerful rallies emerge. usually when the charts are looking the nastiest is when the market snaps back for a big short squeeze. so you want to have cash to play that.
Keep an eye on OIL it tends to bounce in the 70 dillar zone as its been in a perpetual range for quite some time.
I usually use UCO as my proxy to trade it as its got 2x leverage
Keep an eye on these bounce points. If we see some panic selling and the market gets near support we can use ETF’s to play the bounce. No sense playing around with too many stocks when TNA can move 10-15% in one day and its totally liquid.
