A down trending market is not the same as a range bound market or a bull market.The loss of the 200 day moving average and it not being retaken by the close is a big red flag for the potential beginning of a bear market. Bear markets do not have defined supports they can fall day after day in a downtrend not finding buyers for several days in a row. However you can’t just go take a huge short position either because the majority of down trends start out very choppy with not only bottom fishers and knife catchers stepping in to buy on plunge days but rumors causing face ripping rallies out of nowhere. This time around the rumors of QE3 and a European Solution could cause wild swings to the upside and the lack of solutions and a statement of no QE3 could cause a plunge for the record books.Even in a calm market it is probable that we will see a few rallies back to the 200 day and it act as resistance and maybe even have a one or two day break to get people back in before another plunge. Tread carefully here.
How am I trading this?
- I am trading on the short side only until we have a trend reversal and multi-day confirmation above the 200 day moving average.
- I am using primarily stock options, to not put excessive amounts of capital at risk of whip saws with surprise news flashes.
- I am trading much smaller position sizes than usual with no leverage above my account size.
- I am shorting recent leaders with broken charts that will have trouble recovering in a rally, and they have farther to still fall.
- I am also shorting junk stocks that have charts in death spirals making new 52 week lows regularly.
- I am shorting recent IPOs that could not live up to their hype and are no longer being rewarded with huge valuations with little profits.
- I am not set in stone on the macro environment I will be ready to reverse and go long when and if we have an amazing rescue and reversal to an uptrend.
- Apple is my planned go to long if the world does not end and life goes on. I like it with a close above the 10 day sma after the market resumes a uptrend.
- I am not going long in this down trend no matter how much I love any stock but will continue to watch for strong leaders for my watch list.
- My #1 goal is to not give back my profits from my up trend winnings in the 1st quarter it is not to make a bunch of money at this time.
Trade carefully here my friends.