Stock Market in Panic Mode
A down market would be an understatement today. Yikes…..
After the big down week in the markets last week I think market pundits were thinking that despite the ratings downgrade on USA by S&P during the weekend, that the markets might bounce after an initial drop this morning as people were already expecting a potential downgrade. So much for that theory…. 🙂
Today’s move is a great example that you can’t pay atttention to all the news (like I have mentioned before in past posts). Listening to all the forecasters and new headlines will destroy your investment and trading plans. You need to have an exit plan right if you are active with your investments. ALWAYS.
This summer has been trendless with the market moving up and down. The market accumulation (as evidenced by volume) has been anemic and when stock starting rolling over during earnings season with low market accumulation it was time to be weary.
It’s too overwhelming and counterproductive to try and understand every world economic headline or try to predict when the USA will go bankrupt or what the currency markets are telling us.
If you are a passive investor that wants to have some type of plan to protect their investments against big down markets then you can follow a simple, tested method like I mentioned in past post or if you are more interested in following short term method like the Heiken Bar Chart (see my post) . No matter your investing method, it is important to stick to your plan.
There were warning signs to exit your positions last week an earlier this summer and you might have had some of your stop loss limits hit last week. I personally was on vacation and totally out of the market. (Although I had a list of semiconductor stocks that were bearish to me with the SOX lagging. Wish I took some of those positions but was too weary going on vacation and the choppiness of the earnings season. )
Either way there were signs of an uncertain market especially after last week so with the market bullish trend clearly broken now we should expect to see an oversold bounce soon after today’s move and the strength of that bounce that will be the sign of where this market is going. Watch how some of the leaders hold up in the coming weeks. Many companies fundamentally are pretty strong with strong balance sheets, so there could be some good buys but if the market just bounces on weak volume and rolls back over then its not worth fighting the trend.
For options traders with the VIX this high and the assumption of a near term oversold bounce, there are some good premium credits that can be collected selling options especially post earnings season now.
Overall, in crazy emotional markets like today it is best to be neutral and let the market tell you what it wants to do. Don’t panic and start building a watch list and keep an eye on strong individual stocks and don’t fight the market trend. Traders love volatility and that is definitely what we have right now.