Splash Zone Weekly Wrap Up: 9/11/16

It is hard not to feel some sort of vindication following Friday’s move. The market had been range-bound for two months. We played both sides of the trade and in the process benefited from both sides along the way. I had basically come to the understanding that the market had limited upside, and while it could keep buying the dip, it couldn’t push price into new territory. All the while, the market was setting up again for another sell-off a la August 2015. Once it showed itself unable to keep the status quo, that is when the market would fall apart, and that is exactly what happened on Friday, when seemingly out of nowhere, it dropped -2.5%

One thing is certain, we can’t get caught up reading our own headlines. We have to focus on the management of the trade as with increased volatility, comes increased price swings. Even with one of the biggest moves ever in the VIX on Friday of 40%, it is still only at 17.5 and could very easily continue to rise even more in the days and weeks ahead. Furthermore, indicators like the T2108 suggests that the market is not yet oversold at this point, with 36% of stocks still trading above their 40-day moving average. 

Stops were hit on our two long positions on Friday, and going into today, if the weakness holds, at some point, I will start to look for some profit-taking  opportunities and should the market eventually want to show a desire a bounce, we’ll start adding some long positions back to the portfolio. 

But avoid the desire to buy the dip just because the market has sold off a lot. It can always sell-off a lot more and leave you with big losses. Friday was a day that scortched the dip buyers as they were unable to see any resemblance of a buy of any kind. 

We’ve got lots to work with, heading into the open today and into the week as well. Let’s be excited.