We ignored the low-volume sell-off and did a little bottom fishing yesterday.
I picked hedged entries on QLD, WMI and DPS that we were never worried about but we also took a shot with UWM $17s at $1.85, just looking for a quick move to $2.20+, as the market sell-off seemed a bit overdone considering only 2Bn shares were traded on the S&P, about 55% below the 90-day average, which is already fairly slow. We’re not going to try to be heroes, those UWMs come off the table with a nice profit into the morning "rally." Seeing a low-volume move like that tells us that a single buy program can quickly reverse the whole thing and there’s been a very observable pattern of buyers stepping in in the afternoon and giving us a "stick save" into the close, which is what we counted on yesterday.
The low levels we held were in the lower end of our range: Dow 8,400, S&P 860, Nasdaq 1,500, NYSE 5,500, Russell 460, SOX 200 and 3,300 on the Dow Transports. None of these levels are "good" and they are well below our "must hold" levels we set in our last Big Chart Review in order to get genuinely bullish but we expected the Dow to test the 40% line if the other indexes couldn’t break theirs and that’s right where we are. Now we have our second test of 8,413 under our belt it is time for the indexes to put up or fall down, even in thin, low-volume environment.
Generally, we’ve been patient and looking to revisit the 8,200 mark before diving in but we’re getting a little more confident in our floor and our hedged entries are giving us 20% downside protection which takes us all the way to Dow 7,000 and things are just simply not THAT bad. Nonetheless, I would encourage you to read my much gloomier outlook from the last Big Chart Review when I was downright bearish with the Dow at 8,824. At the time my overriding reason was "we just got about as much stimulus as we’re likely to get between now and inauguration day" and our roller coaster physics have since taken over. Now we are heading into the new year and we can expect investors to look ahead to the next round of stimulus - perhaps they will begin placing some early bets.
It broke my heart yesterday to see money herded back into energy and other…
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