The violation of the lows in today's trading calls into play the risk level of 1420 on the S&P 500 as the new downside target.
The upside of this set up is that number 1 we are very close to this target right now and number 2 I am sure this violation of the lows will bring about yet more short to intermediate term bearish sentiment.
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I continue to buy on weakness and although I am a bit behind the eight ball, the fact that I hedged all my long term positions in July and covered late October has given me a huge cushion from which to operate.
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The action of today certainly was not what I expected, but then again the market is never one to argue with as it will always have the last word.
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I took the day off on day trading this market, but this does not mean that there was not more to learn and confirm about our processes. I will go more in detail with the day trading post, but the first thing you will notice is that the opening gap was not filled in the first hour of trading. This told us that today would be a trending day and it was very safe to sell rallies. While these types of signals do not always pan out, they do operate with more than 80% probability and this is certainly good enough to take notice and utilize.
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Near the close, the market did seem to be setting itself up for an upside opening tomorrow and one that could very possibly be faded. Of course we will have to take notice of exactly how the market opens tomorrow and also how the Asian and European markets trade overnight, but trying to stay one step ahead is always a good idea.
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If we do get to the 1420 area on the cash S&P 500 and are able to stabilize then I will be averaging down some of the positions in the aggressive trading account as I continue to look for a strong end of the year rally.
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The commodity account has been going strong and has more than made up for the weakness in the equity positions. Particularly Gold and Cotton have been stellar performers and I will be moving my stop up even further to lock in potential doubles on both positions.
For those of you that are under the misconception that commodities are riskier than equities, I encourage you to look back through the blog and see why this simply is NOT true and has been proven time and time again through real time.
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The reason so many are not able to stay in the commodities markets is a money management issue, not a trading issue. About 95% of the time, the cause of futures traders demise is the taking on of too much leverage. In other words, looking for the big score quickly with very limited capital. This is a great recipe for disaster. Patience and being very selective in your trading will bring you success, but you MUST be willing to put in the time to build your account up and take only trades that offer high reward with little risk.
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Well I am going on and on about things that are not even relevant to the equity market comment, so here is where I stop.
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