No matter how you slice it, that's a negative development for the current rally. The SP500 losing 40 points on the day...Yikes! No matter what time-frame you invest/trade you should take notice of today's action. Yes, the rational for the sell off is silly and you might not agree with it. Maybe you want to just shake the market and say, what the hell is wrong with you?! But none the less price says sell, so we will sell.
For my personal accounts the last 3 days I have sold my positions down to 1/3 stock to cash. Unfortunately a little more than half of the sales I made were made today : ( I am still holding most of my positions just in very small amounts. I trade around core holdings and when things get tough I will reduce all my positions down to a predetermined minimum amount. When things improve I will then add back to those core holdings and build a position during a rally. Wash and repeat.
I will be targeting the primary trend support and prior breakout high at 1,480 for this breakdown to resolve. There will likely be bounces and rallies on the way to it, but that is ultimately where I expect prices to stabilize and rally from. Bounces into declining moving averages and overhead resistance can be shorted as long as the downtrend remains intact. I personally like to trade some short positions against my reduced holdings for a way to hedge more.
A confirmation that the trend is in serious Red Alert status can be seen by this weekly chart of the SP500 and subsequent rallies we have seen since the 09 lows:
Its a bit hard to see, but the basic gist of what I'm trying to show here is that each intermediate term rally in the past 5 years has come to an end in similar fashion. It starts with a weekly MACD bearish crossover, followed by a key trend support line breakdown, and finally a price failure of the 20 WMA.
Luckily the recent pullbacks have been just that, pullbacks. But you can see what can happen should things get out of hand. Looking back at 2007-2008, all those little pullbacks look very similar to the top of that monster crash. Sometimes its a pullback and sometimes its a full on melt down. By adhering to strict risk management rules you will be sure to avoid the worst part of large market corrections and protection of capital is the most important element right now.
What we really need to see to become 100% bearish though will be a rollover of the 20 WMA with a cross below the declining 50 WMA and price failure of 1,480/long-term trend support; right now I'm about 50% bearish. We are not there yet, we are STILL in a bull market. I still expect higher stock prices for the future, we just need to all realize that markets don't trade in one direction. There will be pullbacks, corrections, crashes, rallies, ranges, breakouts, breakdowns, all of them, frequently. These things are normal to proper market behavior and corrections should be welcomed as opportunities, not depressive pits of financial ruin. If you follow a simple plan you will be one who sees opportunity in negativity and will be prepared when things actually improve to gain more than most.
NOTE: as for the Blog Portfolio the only mid week casualty has been DDD. It is still holdings its major moving averages, but due to the volatile nature of the stock and the projected target for the symmetrical triangle pattern breakdown today is roughly 30% lower than current prices. I felt until more stability comes to the market and DDD, it was wise to step aside for now. We have done VERY well with DDD this year, no need to be in any hurry to give it all back.
What I like about this pattern is that the measured target is right at long-term trend support. That will be a fantastic buy. I will be pounding the table on that one. I just hope the market cooperates enough to give us that much of a gift.
I will be watching a couple holdings tomorrow to see how they trade, there are 2 Sector ETF's that are near to the chopping block and they are XLE and XLV. XLV will likely survive due to its relative strength, but its possible XLE will be dismissed from the portfolio come weeks end.
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