Fearsome Fridays

There is a fine line between taking profits too early and missing the exit.  Unlike previous big selloffs, the bounces from short term bottoms have not lasted for more than a few hours.  All of a sudden, traders are nervous holding longs above SPX 4400 and a soft breeze knocks it over and takes it down.  Once again on Thursday, the market couldn't hold above 4400 and quickly plunged towards 4300.  Same thing on Wednesday after a "hawkish" Powell.  And on Monday night after a strong close, when the overnight session dumped huge and weakness continued into the Tuesday US morning session.  

With a target of 4460-4480 for my exit point, I was only 30 points away on Wednesday but thought there was no rush to sell and the market was due for one big up day.  And like that, I missed the graceful exit.  Not only adding to losses, but also not giving myself more dry powder to buy lower.  There must be a lot of other stuck bagholders who are thinking the same thing, waiting for a big up day that doesn't come, and end up pushing the sell button when they give up hope, day by day. 

The trust in equities is eroding, as most people realize that the fundamentals are getting worse with a tightening Fed, no more fiscal stimulus, and valuations that are historically very high.  Sure there are still going to be a lot of TINA (there is no alternative) investors but they aren't the marginal buyer or seller that moves the market.  Its the hedge funds, CTAs, etc. that move in and out of the market regularly.  And they will be less eager to chase rallies in the coming months.  Making a V bottom unlikely this time around, at least until you get more of a flush out in the market, a bigger purge either through time spent chopping at these lower levels or through even lower prices.    

Even if this week was the bottom, and we bounce next week, its not a good omen when you spend so much time near the lows, and struggle to hold gains after being so oversold.  It shows that there are a lot of fund managers out there, poorly positioned and hurting, that are eager to sell on any bounce, just to minimize the big damage done so far this year. 

Now we're back in the low 4300s, a price area that was strong support on Wednesday and Thursday.  But we've spent too much time at these levels, and even with a AAPL earnings beat, it wouldn't surprise me if we took one more scary looking drop down towards anywhere from 4220 to 4270 to test the longs again, ahead of the weekend.  Fridays have been bad, but Mondays have been even worse this month, so if we trade weak, it probably leads to a cascade of selling from the sell ahead of the weekend crowd dumping their longs, crying uncle.  That should be enough to form a bottom, considering the big put volumes we've seen for the past week (yesterday was another big put volume day, and the total put/call ratio was 0.93, extremely high for a marginally down day).  

Still have the same target for the longs of SPX 4460-4480, but will not give it more than a week to play out.  If we still haven't gotten to my target price by next Wednesday, looking to sell and move on from a bad trade.