Sunday, December 13, 2015

Here is Why I'm Staying In Cash


In the last 8 sessions, $SPY and $QQQ dropped by -4.5%. We witnessed a very similar situation 5 weeks ago on November 3rd as well. On Friday Dec 11 when the market opened, all the major sectors started with a big gap down and we never recovered. This is the time to close out all the losing positions and harvest profits. It is best to stay on the sidelines and conserve capital until the market is in a Confirmed Uptrend. Currently the 2 major indexes, $SPY, and $DJX are trading below the 200 day simple moving averages. These are technical signs that the market is breaking down and the overall health of the market is very sick.
Remember that CASH is considered to be a position too.


Sharpen Your Skills

It is disheartening when the market just trades sideways like it has for most of 2015. This is the time to stay vigilant and practice trading using a virtual trade platform. In 2015 we have seen that the market can turn on a dime and within a few days we could have a Confirmed Uptrend. How the market will react to a rate hike by the Feds this week is not something that one can predict. It is best to see how the institutions react and where they deploy their cash. It is wise to take the lead from them. One thing we know for sure though is that they have been supporting big cap stocks like $FB, $GOOGL, $GOOG, $AMZN, $LNKD, $PANW, $SBUX, $MSFT, $MCD - just to name the few. Institutions want to show good performance of their portfolio for the year end. Because these stocks are not volatile due to the sheer size of their daily trading volume, institutions can park their monies and assure consistent performance.


My Market Outlook

April and December are the 2 best months of the year historically. This year $SPY did less than +1% in April and December is down by -3.5%. Our traditional Santa's Rally in the market has fizzled. Retailers like $M, $JWN, $BBBY and $WMT did not do well during the Back to School season. The last 6 weeks of the year is where they make 40% of their profits but they have given up some of their market share to online retailers like $AMZN in the last 4 weeks. $USO - a proxy for oil - has dropped down by 90% from its all time high achieved in July of 2008. There is a lack of demand world wide and the currencies of emerging markets are in a downward spiral with the US Dollar strengthening. I have set my year end lower targets for the 3 major indexes as follows:

  • $SPY - 1970
  • $QQQ - 106
  • $DJX - 168
We could have a rally at the beginning of next week with the Fed announcing their decision on the rate hike and institutions covering their short positions. We could also experience the downtrend that we experienced in late August. It is a risk that I would rather not be exposed to and I think it is a good time to stay mostly in cash and not take any new stock positions this week.


Stocks Worth a Virtual Trade

These are some of the stocks that I will do virtual Option Credit Spread trades this week to keep my skills sharp:

  • $AYI
  • $NTES
  • $FB
  • $GOOGL
  • $SBUX
  • $MCD
  • $PNRA
Happy Trading!

DISCLAIMER



Do not take a position unless you are prepared to sustain a TOTAL LOSS. Your loss could include the money you invested as well as commissions and transaction charges.


The Information I provide is for education and informational purposes only. The Information provided is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice. The Information provided is general in nature and is not specific to you or anyone else.


YOU SHOULD NOT MAKE ANY DECISION, FINANCIAL, INVESTMENTS, TRADING OR OTHERWISE, BASED ON ANY OF THE INFORMATION PRESENTED WITHOUT UNDERTAKING INDEPENDENT DUE DILIGENCE AND CONSULTATION WITH A LICENSED PROFESSIONAL. You understand that you are using this Information AT YOUR OWN RISK.