• The S&P 500 gapped lower to kick off the trading session on Thursday, and it didn’t bother looking back. We broke down through the 50-Day EMA, as we continue to see a lot of negativities out there.
• The Federal Reserve had a meeting during the trading session on Wednesday and announced a rate hike.
• Furthermore, the market then tried to find some type of dovish statement in all this, only to see the market turnaround as the adults came back to work.

Keep in mind that we see this quite a bit, where the market does everything it can to find something dovish in a Federal Reserve statement, only to see the exact opposite happen the next day when people really began to pay attention to the fact that the Federal Reserve is going to remain tight for much longer. Therefore it does make a lot of sense that we would see this market breakdown. After all, we must worry about earnings recessions now, and the fact that next year does not look that great.
 

Position Sizing is Becoming More Crucial

Friday is the options expiration date that has the most volume that we have seen so far, therefore it’s likely that we would see some type of volatility that is somewhat unpredictable. In this environment, it’s more likely than not going to be dangerous to trade, so we could get a little bit of a bounce. That bounce is more likely than not going to continue to attract sellers, we could just as easily break through the bottom of the candlestick and continue to go lower.

Once we get into next week, things get interesting, since the market has the blackout period coming, which is when companies cannot buy back their own stock. Keep in mind that a lot of what’s been lifting the stock market for years has been companies buying their own stock. Beyond that, we also have holiday illiquidity coming, so that of course has a certain amount of danger attached to it as well. While we normally talk about the “Santa Claus rally”, we may be talking about a selloff at the end of the year. Position sizing is going to become more and more crucial the later we get in the month, so please if nothing else, be cautious.

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