Sunday, August 23, 2015

What happens next - Part 2

Current market rating here

I am posting 3 scenarios on what to do if you are short, long, neutral right now.

We took 50% off the ST and IT positions on 08/21 at market close, explanation below. I will let the other 50% of the positions stop themselves, higher or lower, when the turn signal is initiated. LT positions will be stopped on a close of > /ES 2035.

Anyway, where does the market go from here. As I posted in my previous post, I have no clue. Up? Down? Sideways for several days? No idea. Everyone out there is throwing darts at the market, one of the darts will hit the bulls eye. My experience tells me that instead of guesstimating what the market does next, it is best to have plans on how to manage the positions. 

  • Have a plan to do if XYZ happens
  • It doesn't matter if that doesn't happen, you still have a plan B if PQR happens
In other words, be flexible in this market. If you are chopped by market whipsaws, that is still ok. Take a walk and come back to trade another time. I do have suggestions on what to do if you are:

  • Short right now: If you are short from ~ 100 SPX points above like us, take some off the table. That way, your profits will be ensured. Because what if the markets rally straight up from here? You have profits, so take some off the positions. Then, there are 2 scenarios. Market goes up or down. If market goes down, wait for the turn. Close the positions when the market turns. If the market goes up from here, have a stop at about SPX 2065. You still end up profitable being in short positions on this "mini crash" because you scaled out already.
  • Long right now: Depends on what level you were long from. We sure hope that you didn't enter long positions at SPX 2100. If you did, you should have been stopped out before 6% down. If you entered long somewhere around, 2025 - 2050, you still should have been stopped by now. If you didn't close the longs on friday at market close and are expecting a rally next, we cannot help. Because there is no guarantee rally is going to come next. May be it will rally. May be it will not. We don't see the rally yet. Without any buying in the market in the last 3 days, how can you expect the market to rally? There are no indications right now that market will rally. That may change come Monday, but we have to see the evidence. 
  • No positions right now: This is the best place to be in. :) Cash is King!!! Traders who are in cash are at a huge advantage. Traders who are short right now, have to close their short positions and then take longs - in other words, they have to be ultraflexible about 2 moves; There is a high chance that this group may miss the next up move. If you are in cash now, you are obviusly relaxed and will see the next turn better without getting whipsawed.

Do not try to trade counter trend moves, you will lose the opportunity. We were short on ST, IT, LT positions prior to market open on 08/21. But, we were "expecting" VST counter trend move upwards. We knew for sure that the market did not bottom, hence clearly mentioned this was a VST move. But, the VST move did not materialize and we got stopped at /ES 2005. As a result, we were down 0.6% on the VST move AND we lost the opportunity to profit on the VST short positions from /ES 2021 to 1970. May be VST, but still 50 points is a big move. 

Hence, do not try to trade counter trend moves.
Do not guess the up moves. 
Be nimble

Saturday, August 22, 2015

What happens next - part 1

Yesterday we tried something foolish  , more on that foolishness in the next blog post. But, let's try to understand where we stand in this market "crash" and what is next. 

Ivanoff suggests this is a market bottom like Oct. 2014. Technical trader says puts haven't been this high since March 2007, hence this is THE BOTTOM. Is it? May be both are right. What if they aren't right? Are we trying to playing a guessing game on who is right or wrong? Are we gambling with our money on guessing?

I am going to post tomorrow what our game plan is. Hence, watch out!

1st let's look the current situation from my perspective. Last market update was this. Our market guage suggested a decline. We got a 3% decline. So, what is the next scenario? Chart below.

1) Market bottom like Ivanoff suggests and bear crushing rally!
2) What if market declines further for 1-2 days and then rally for few days and further decline?
3) Who knows what happens? And why exactly are we trying to guess!

This post is about perspective, so let's just do that. Chart below. 

More puts have been bought in several instances before. And does more puts bought = harder the market crash? I don't think there is a linear relationship between extent of market decline vs puts. It is not wise to guess based on "VIX hasn't risen more ever" or "puts are high" this time. 

So, what do we do? That is for tomorrow. Thanks...........

Friday, August 21, 2015

VST market update

E-mini set up a positive divergence on the hourly. Go long with a stop at 2005 /ES. Only VST.

Market update

Previous update here

We had to post the previous update to guide ST longs on when to close the position and what levels are important. The /ES futures market was down 15 handles, hence defining levels was important. As posted yesterday, market closed below /ES 2060 and /ES 2035 as well. 

ST - changed from buy to sell
IT - had been a sell signal since July 26
LT - changed to sell from buy

Our options machine is in the "sell" zone, so exercise caution. Chart below. Could this sell move be a headfake? Well, may be, but let the market tell us that point. We are confident to read the charts when that happens.

I am a contrarian but I do follow the charts to identify the trend. I do not play counter trend moves though. Being a contrarian and a counter trend trader are quite different. 

We will post an update when the ST trend changes.


Subscribe here and follow by Email