Super Duper Oversold
On Tuesday, the Nasdaq opened slightly stronger but quickly
reversed to sell off hard. Except for a late-day bounce, it was pretty much a
solid trend day lower. This action has it closing poorly and at its lowest
levels since 1997.
The S&P also sold off hard to close poorly. It’s
also at its lowest level since 1997.Â
Once again, the VIX stretched further away from its 10-day moving
average as fear increased. This puts it at its highest level since the September
lows. True, it could always stretch further (e.g., 1987 crash)Â but
this action still suggests the market has the potential to
bounce.
So what do we do? What else can I say? The market isÂ
now super duper oversold. And, as you know, this doesn’t mean that it can’t
become even more super duper oversold. Therefore, I think the best thing to do
is to continue to enjoy the ride in your existing short positions but PLEASE
make sure you are taking partial profits and trailing a stop.
No setups tonight due to the severely oversold nature of
the market. For the nimble, look to play an opening reversal in the index shares
should they have a big down opening.
Outsmarting The Market
It seems that lately I have been getting a lot of emails on
when (precisely)Â to lock in profits. First, I NEVER try to outsmart the
market. Oh, I used to years ago but now I let it tell me where it is going. In
other words, I don’t try to pick the exact bottom to exit my short positions (or
tops for longs). I simply “trail and scale” because I know I’m not
that smart. I’ll show some examples of this soon (as soon as the market bounces
and takes out trailing stops). In the meantime, see my money management articles
in under TM University.
Best of luck with
your trading on Wednesday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
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