The Trigger to Buy Will Come from VXX
Today the market is short-term extremely oversold. The one good sign I saw yesterday was that there was a flight to safety into Treasuries, utilities and other safe asset classes. This type of flight to safety is often a precursor to a short-term market bottom. The trigger to buy will come from VXX which has been behaving like a runaway momentum stock. VXX was built to eventually go to zero. Early yesterday it moved from negative to positive and this occurred ahead of the wave of equity selling that ensued. As I mentioned yesterday, normalcy in VXX will go a long way to identifying a short-term bottom.
With that said, volatility continues to rise and your position sizing should reflect (and respect) this fact. If you’ve been scaling-into positions, you likely still have cash available to take advantage of lower prices. If you’re full, there is no reason to get leveraged in order to try to pick a bottom (too much risk). There will be plenty of additional opportunities to trade pullbacks and the goal here is to trade through this pullback and be prepared for the many which will follow.
If you are adding to your positions, the most efficient way to do so is with the S&P instruments. These instruments are the market and you can construct any level of market exposure you like from the many instruments available (along with assuring you participate when the bounce occurs).
Today’s Potential Opportunities on Further Pullbacks: