February 9, 2018.

The selling pressure continued to accelerate and panic is certainly in the air. With another large day of losses on Wall Street the bears certainly realized their dream after 13 months of upward movement with non-existent volatility.

Yesterday, the S&P 500 managed to trade in positive territory, reaching the 2,685.27 point level, right before the bears entered the fray and bit sizably into the market’s gains. Markets, essentially, don’t drop the same way they climb. Losses tend to be larger and faster, while upward movement tends to be slower and more stable. Therefore, it’s impossible to think about a downtrend as a reversal in an uptrend. At the same time, there is commonality – it’s very hard to predict the exact reversal point.

Reversal points in a downtrend are likely to produce fantastic trading while the surges can be quick and large. All large upward movements tend to unfold right after large losses.

There are technical analysts out there who use moving averages, Fibonacci sequences and scholastic oscillators to try to predict the exact point at which the market will find support, but I personally don’t think that one can be very scientific in this regard. When the market is in freefall – like it is now – you just have to step aside, seek out short positions and be ready with you wish list. That is, until the dust clears.

Daily Summary: The Dow Jones fell 4.15%, the S&P 500 sliced and diced – slashed 3.75%. The NASDAQ collapsed 3.9%.

All of the large indexes traded deep into negative territory, banking and tech stocks taking most of the impact. That shouldn’t come though as a surprise; after all, these were the sectors that created huge profits for investors over the last year.

Just as a reminder, this is what’s changed:

From November 9, 2016 until February 1, 2018, the S&P 500 traded at an average daily range of just 0.6% between the daily high and low. Since this past Friday, though, we saw the intraday range soar past 3%, the VIX fear gauge shooting up past the 35 point level yesterday.

So, why did this happen?

Many traders will blame the surge in long-term governmental bond yields, but to be perfectly honest, it feels more like something more simple and classical: “What goes up, must go down.”

For years, the market has risen without pause, until they suddenly reached an unbreakable glass ceiling. In tandem, it took bears time to come out of their hibernation. The long-term mean put/call ratio on the CBOE is 0.654. From December 7, 2016, until February 1, 2018 there was not a single day with a reading above the long-term average.

At the same time, though, this trend changed this past Friday, February 2nd. Since then, the put/call ratio has recorded an average of 0.73. That means increasing, immediate demand for put options. Yesterday, we already saw a surge of about 1 which signaled an extreme level of fear.

In other words, based on these figures, investors have gone from bullish adrenaline to one of full-blown fear, and in just a few days.

One of the significant changes that took place in the market over the last few days was in the loss of enthusiasm for passive investments. These passive investments had injected hundreds of billions of dollars into markets through trust funds and ETFs. Suddenly, this investment outlet lost favor. If you had put your money in an ETF 8 years ago, the movement you’ve seen until now is precisely the reason you’re likely to think that the easy money is now over.

Many traders tend to think that this type of movement means a death toll for the market for quite some time. The chances are high, though, that this is not what we’re going to get. The catalysts and the reasons for the current losses are going to evaporate rather quickly and then it will be paradise again for those who know how to pick stocks!

In this market, it helps very much to remember one of the principles I tend to remind investors of often. “When you’re in a hole, don’t dig yourself in any deeper.” When the market’s not looking good, get out! Don’t make the situation worse. Wait for things to clarify themselves and for the dust to clear before making decisions on new investments.


Daily change

DJX23,860(4.15 %)Down

Friday’s Hot Stocks: EXPE, FEYE, NVDA, ATVI, SKX, Z


Have a great trading day!


Economic Calendar


DAYTIME (EST)EventForecastImpact
Monday9:45PMI Services Index53.3Medium
Monday10:00ISM Non-Mfg Index56.2Medium
Tuesday10:00JOLTS5.900 MHigh
Wednesday8:30William Dudley SpeaksMedium
Wednesday10:30Oil Inventories6.8 M barrelsLow
Thursday10:00Chain Store Sales  
Thursday8:30Jobless Claims235 KMedium
Friday8:30Wholesale Trade0.2 %   Medium



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