The markets continue to trend down and my put options in SPY and IWM are well in the profits. I am going to continue to hold them with an eye out to 18 November which is their expiration date.
Both the SPY and IWM are trending in similar manner and look very weak. This is in combination with the VIX having back to back over 5% rise which is signaling the downward trend likely continues most of this week through the November 8 election date.
The election polls are also likely going to show that the race is tightening which means more uncertainlty for the market. There are plays for each candidate winning which I will look into later in the week.
Interestingly XLF (Financials) and XLK (Technology) have been somewhat of a good story with either a upward or neutral trend. It remains to be seen if these sectors bring up the overall market or swoon to take the market further down.
Both the XLV (Healthcare) and the XBI (Bio Technology) sectors have been pummeled and look really broken. XLU (Utilities) and the XLE (Energy) look neutral to me.
EEM (Emerging Markets) are still neutral but could be heading downward as well.
There is an interesting article in CNBC today that talks about a lot of things but mostly risk and reward. The article is more concerned about protecting one’s downside and how you can do better than inflation rate to be moving in the right direction. But do people (individual investors) really look at things in such a dispassionate way? The primary tendency is if you are bullish you buy and when you are nervous or (more likely) the market has tanked fear comes over you and you sell.
There are several downsides to taking a short-term approach to the stock market:
- You are liable for short-term capital gains
- You have to monitor the market on a regular basis
But you are unlikely to get caught in a “black swan” situation.
If you start with the premise that you don’t know what is going to happen to the markets tomorrow, you have a more “hands-off” and “mind-off” approach to the markets.
The premise for The Alternate Trader model is to stop predicting the market. To really believe that there is no way to know what is going to happen tomorrow. And let your behavior be completely driven by what the market tells you.
The markets have been in a downward trend since my last post here couple of weeks back. I went long put options on the SPY and the IWM. I did not buy the SPXS and TZA as I had originally planned for as I wanted to define my risk and play a short-term trade.
The move down on the SPY has not been significant since my bearish trade. However, it has trended down. The move down on the IWM has been a little more pronounced and it could be the signal for the broader market to go down as well. I have November puts on both which are showing healthy profits as of now. I may close these and roll over into December puts if the trend is maintained.
To be noted is the fact that XLF is distinctly bullish while XLK and EEM are neutral. So, there is some risk that marjet reverses trend and starts getting bullish.
XLE is broken. XLU is bullish and XLI is bearish.
The VIX just trended up today again but is still low under 17 which is higher than where it has been for a while but still lower than what we would call a bear market.
The market looks somewhat mixed. The main signals seem to be towards the bearish side with SPY and IWM trending low. There is some good news from the quarterly results from the banks and financials though which is likely stemming the tide a little.
But overall the market seems to have more chance of going down than up. So, I may take up a stance along those lines in the next day or so.
SPY: Bearish since last Thursday October 13; I should have got in with a bearish trade that same day. I will likely buy SPXS today
EEM: Just about touching the bearish line; should watch for the next few days
IWM: Really in bearish territory; I should go long on TZA
XLE: Very choppy; cannot make a judgment
XLU: Has been severely bearish; now trying to come up a little but still in bearish territory
XLI: Almost in bearish territory
XLF: Strangely trending against the wind a little; looks like in somewhat of a bullish trend probably due to the good results from the banks and financials recently
XLK: Neutral but looks like breaking soon
I sold all my positions on SPXS, ERY, EDZ and FAZ for a net loss of 3%. Lesson learned is get in when the model tells me to get in and don’t wait. In this instance I wavered and waited. Not that I would not have lost some money. I still would have. But I would have disciplined towards my principles.
Overall the market looks like in neutral territory. However, I have a bearish bet at this time and it does not look like the chances of the downward trend that I am hoping for may pan out. The chance only seems to be 50% at this time – not something I like to bet on. So, the prudent thing for me would be to get out of the market and wait for a definite trend to develop.
SPY: looks neutral but also looks like will break in some direction quickly; there is danger that it will break in the opposite direction that I am positioned – I am positioned in a bearish stance; perhaps I will reduce my exposure or get out completely to see which direction the market breaks and then take action
EEM: very much same as the SPY
XLF: clearly very volatile; best for me to get out
XLE: has turned bullish; I need to get out from my bearish bet
Last Thursday I sort of doubled down and went long the FAZ based on trend seen in XLF and ERY based on trend seen in XLE. Both, per my earlier commentary were broken. So, here is how my trades look now:
EDZ bought at 23.77
SPXS bought at 12.66
FAZ bought at 31.68
ERY bought at 13.81
The markets seem mostly on neutral territory at this point in time. But it just seems to me that it is waiting for an excuse to go down.
SPY: kind of neutral at this time
EEM: almost went close to positive territory but I consider neutral as of now, today is important
XLF: in a bearish trend
XLE: in a bearish trend
Yesterday I went long the SPXS based on trends seen in the SPY and EDZ based on trends seen in the EEM. I will be tracking these to see how this move pays out. There have been a couple of days of sideways moves from the markets. So, let’s look at some of my favorite tickers as to how they are trending:
SPY: still broken and cannot seem to make up its mind; this is not surprising because the biggest influencer of the market – the Fed – cannot seem to make up tjheir mind either; so the broader market is just reflecting the dilemma of the Fed
EEM: looks little less bearish than the SPY but bearish none-the-less
XLF: looks worse than the SPY
XLK: better than others but caught in the downward trend of the broader market; may be the last one to fall
XLE: looks really sorry, completely broken
Today is a big day with both the Fed and the BOJ coming out with policy statements. The BOJ policy starement is already out as I write this and it was not the shock and awe that the markets were fearing. So, futures are higher as of now which is about 15 minutes before market open. But more important now will be what the Fed says later in the day and how the markets react. It is important to distinguish from the immediate market reaction to the slightly mid-term market reaction. By mid-term I really mean a week to a few weeks.