No Surprises Till Now … So What’s Next?

Once again, we’ve nailed the overall market direction and condition.

If you’re buying puts on bearish setups, the big advantage is that buying puts requires no margin.

Last week I mentioned how the QQQ, DIA and IWM had already dropped by 10%, and that the SPY would follow, which is all but has.

Market Direction sets the scene for how we then approach Stock Selection and our Trade Plan. In this way, all of our 3 Master Keys intertwine.

It’s not that you can’t trade a bullish setup in a bearish market if the setup is a peach. But you do have to manage the trade accordingly.

Regardless of the market conditions, if you follow our principles, you will either be minorly adversely affected by the unfolding drama, unaffected entirely, or even profiting from them.

Market Outlook:

Last week I said it’ll continue being a bumpy ride, and I believe there will be more downside to come. A 10% drop from the highs has already been achieved by the IWM, and I expect the SPY to follow suit.

The SPY is a hair away from us nailing it again.

What now?

The markets are oversold, but they are perfectly able to continue in that vein.

What I expect to happen is a short-term pullback, and then we’ll see how the indices react against their 200-dmas. Most likely, it’ll form resistance, and a waterfall pattern will occur. But we don’t need to get ahead of ourselves. Much can happen in the meantime.

After this bearishness, there will be a bountiful recovery of the sort we like best, so it will pay handsomely to be prepared for that eventuality.

Market Timers:

• Longer Term Market Timer (OVIsi):
  Amber (remember it’s slow).

• Medium Term Swing Timer:
  Bearish, oversold (which can continue).

• The Main Indices OVIs:
  All indices are showing red.

Stock Selection:

Last week’s focus was mixed, though there were no false breakouts. I said you can be happy with dry powder right now, and that applies this week, too. That said, some decent low-risk setups are presenting in both directions.

Remember, managing risk in your trade management is as important as trading with higher probabilities.