The bulls are testing resistance that served as prior support and the big question will be if they can hold current levels into the close. The technical damage done in recent weeks has occurred in dramatic fashion and traders are trying to call a bottom.
The market pros believe the market is offering good opportunities to get long but there is another 2% risk to the downside. Of course, that is easy to say as the Dow has fallen nearly 8% from the high and another 2% pullback would make a 10% correction.
The problem we have with this theory is that they first failed to see the “correction” that has already occurred and one we have warned about. The second issue we have is that a bottoming process doesn’t occur overnight and the same knuckleheads that missed the rally in 2013 told you NOT to buy the market all year long.
This type of wishy-washy approach can really hurt your investments if you don’t know what is going on with the market. Once again, we heard another talking head say to ignore the VIX. We also can’t believe the market pros that come on TV don’t encourage or teach investors HOW to play a pullback by using put options. Oh well, that is why you have us – to avoid the noise and to find the real action.
We turned in an incredible January playing call options and we mentioned February could be a little rocky and why we have started a few put positions. While we do believe more downside action is coming, we are also aware of the snapback rallies that can occur. Judging the velocity and if they will hold will be the determining factor on if we buy calls at resistance or continue to use put options.
The Dow is up 83 points to 15,456 while the S&P 500 is higher by 13 points to 1,755. The Nasdaq is advancing 40 points to 4,037 and the Russell 2000 is gaining 10 points to 1,104. The S&P 500 Volatility Index ($VIX, 18.67, down 2.77) is down 13% and is back below 20.
We have a New Trade we are getting into this afternoon and we also have a possible New Trade for our Weekly Wrap we may pull the trigger on. Subscribers, check the Members Area for the updates and stay ready into the close in case we take on additional new trades or lock-in profits in others.