$SPY Although there was
heavy selling Wednesday morning and a decent bounce in the afternoon, there still
is no capitulation. The S&P 500 is only 7.4% off it record close. It hasn’t
even had a correction (10% correction would take it to 1810). Dip buyers are
too fast to buy and yet, there wasn’t enough buying to turn the trend around.
Both the short term and intermediate term trends are still down.
The stock market, which
has being rising nearly non-stop from November 2012 to early September 2014, is
going through a mean reversion. Instead of dip buying and V-shaped bounces, we
are likely to see more rip selling and inverse-V slides in the next few months.
In the very near term, the outperformance by the small caps suggests that
stocks could be close to a near term low. A retest of Wednesday’s low on lower
volume will likely bring in more dip buyers. With that said, the character of
the market has changed. Volatility helps short term traders.
Wednesday’s trading
volume came in at the highest level since September 22, 2011 when the market
was attempting to bottom out in the midst of approximately 20% drawdown. We very well may be close to the bottom but
if history repeats itself, which it most often does, there are a few more down
days ahead before we see the light at the end of this tunnel. .If you are looking for long term positions,
be very careful and go slow.
$SPX Mid way into the week found the Alpha One
Model with five trades thus far. We
closed out $FFIV and $CP on opinion downgrades and traded both Call Options and
Put Options on the $SPY as a hedging action on the portfolio. There remain three open positions at this
time, under the recommended allocation of 25% Long but I am hesitant to commit
cash until the model senses a bottom forming. And that is not yet happening.
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