The collision of global markets and social mood

Wednesday, April 9, 2014

Plotting Strategy

Yesterday: 5 warning signs of a stock market bubble.

Today: Has the correction in stocks rebuilt the wall of worry?

Two stories a mere day apart by the same author, two completely different headlines. All this really does is jerk people around.

If there is indeed a trend to be aware of here, it's that the pace of opposing headlines and news both bullish and bearish seems to be accelerating. It feels like a case of growing anxiety.

In Europe, the headlines are sounding the all-clear, for today at least. The front page of the FT reports that the IMF has cut the danger of a downturn to near zero, and that Greece is launching the sale of 5-year bonds, the first long-term issuance since its 2010 bailout. No anxiety there.

The market jerked me around by bottoming during the European close yesterday which is my self-imposed no-trade period due to consistent losses over the years during that timeframe.

A little patience is a good thing, however. Sitting on the sidelines, especially after a sharp, swift decline is not the worst thing a trader can do. I used the time to plot strategy.

The market did make a new low, but it was a weaker low. There are arguably five waves down from the top now. A bounce could occur that could take the market close to the 1870.57 swing point that I had my eye on. It feels choppy thus far. UVXY is coming in hard and should be an excellent buy very soon, probably in the 58 area. I'm holding the SPXL against the UVXY and will scale out of the first as I'm increasing the latter. Seeing as I have some underwater SPY calls as well, I'll roll out of them as SPXL whittles down, or sacrifice them.

Failure to get above the 1860 level (the 38% Fib retracement) could become dangerous, however. At the current time, I feel better about holding more UVXY anyway and will continue to build the position.

The European majors are solid green today, so it feels like go-time for a stateside bounce as well.

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