My Market Sentiments - September 14th 2015

Trade Plans

Traditionally, this is the time of the year when things look very gloomy in the market. The past 4 weeks were brutal. All the gains that we had made in the $SPY in the last 14 months were wiped out in just last 20 sessions. This is why it is critical to develop a very detailed and well thought out trade plan for any position you take.

These trade plans should always have specified profit, loss and time exit targets. Trade plans are your guide to setting up benchmarks for harvesting profits and increasing the size of your portfolio. One of the main components of the trade plan is planning for a loss exit. This is the part that a lot of traders overlook and have difficulty executing.

I find that it is best to set contingency orders with your broker.  Basically, when you make your initial stock purchase, set your order to include contingencies for the loss and timing exits you have pre-defined in your trade plan. This is how you avoid the kind of losses that a lot of traders lived through these last 4 weeks.

My Market Sentiment

Currently I am more bearish now and we may be headed for another 5% correction in the next 5 weeks. This sounds alarming but the data is very clear on this subject. I highlighted my reasonings in a blog post on May 13th with my take on 'economic PSTD'.  There are currently over 25 countries that have devalued their currencies to gain an economic advantage of lowering the cost of their exports. China isn't actually the source of the problem, it's the sheer lack of demand from developed countries causing these effects all over the world.

Emerging markets economies depend on exports of manufactured goods to the developed markets of Europe and America. They use the commodities like oil, metals, iron ore, coal and fertilizer components. There has been a dramatic drop in the demand of these commodities since 2013 which gives a lot of weight to this lack of demand argument.

The slide in the price of oil since June of 2014 is the latest example. There were plenty of warning signs in early 2013 when there was a dramatic drop in the the mining sector. Stocks like $GDX, $AUY, $ABX, $CLF, $FCX - to name a few - were dropping precipitously. Economic expansion depends on the use of commodities and when there is a lack of demand for them, it makes sense that the commodity countries will face a recession. Canada and Brazil are already in recession. Australia and South Africa are headed that way too.

Bearish Option Trades

75% of stocks trend in the general direction of the market, so it is worth considering placing some bearish option trades with a sweet spot of 45 to 60 days out.  Here are a few ETF's and stocks to consider for bearish options:

$FXC
$FXA
$GDX
$AUY
$ABX


Happy Trading!