Follow   the   Institutions

Did you hear that noise when the market crashed last week?

It took the market two months from the  "Follow Thru"  day in early June to gain  +13%  with the leading Growth Stock index  $QQQ.  They were the best two months in the last 20 years.  We gave up  -4%  back within a week last week. 

Ouch !  Ouch!  Ouch!

That  was  a  Train  Wreck

Do you have a plan in place when such things happen in the market?

Last week I had received a lot of messages on my tweeter account as well as Linkedin n facebook pages.  Everyone wanted to know what I thought about the market.  On Thursday IBD(Investors Business Daily) had updated the market pulse to  "Market Under Pressure".  The very next day it changed to  "Market in Correction".  This is a very serious damage done to the market within a week.  We had a cluster of 6   "distribution days"   between the  $SPY(broad market index) and $QQQ(leading growth stock index).  $DJI has dropped almost a 1,000 points within a week.  I felt like a lot of my followers were feeling like a deer in the headlights.

I  Heard  the  Sound  of  Market  Crashing  ... Loud  n  Clear 

The easiest thing to do in the stock market is to buy a stock.  It takes just a mouse click.  How you manage that risk is ultimately what makes you a profitable trader and an investor or someone who loses money in the market.  One should have started down scaling the positions as of Wednesday and started the process of conserving  CASH  by harvesting profits.  This is the time to be very defensive with your positions.  No one can predict what the market will do this coming week.  Looking over the data, we know $QQQ  had corrected  -10%  in May.  In October of 2018, we had a similar action with  $QQQ and it plummeted down with a  -20% correction.  

Hope  and  Prayers  is  not  a  Good Strategy

Currently  $QQQ  as well as the  $SPY  are at 50 day sma(simple moving average).  Next stop would be at 200 day sma.  That would be a correction of over  -10%.  We have been in a sideways trend for the last 18 months now.  The last time we had such a scenario was in 1955 to 1957 when the market moved sideways for 18 months.  It plummeted over  -20%  after that.  This is not a prediction but that's what the data shows.  It s not an opinion because we all know that market could care less about our opinions or our religious and political beliefs.  Market has sent us a very clear signal from the way the institutions have behaved.  On Friday, the trading volume on both - $QQQ  as well as  $SPY  had twice the normal daily average volume of shares traded.  It was mostly selling volume and institutions were just reducing their exposure to the market.

Follow   the   Institutions

• Reduce exposure in the market.
• Harvest partial profits and start scaling down stock positions.
• Don't allow losses to exceed 6 % or more.
• Watch stocks as they begin to plummet below the 50 day sma and take defensive action.
• Monitor stocks that are bucking the trend ($CMG as one such stock).

These are some of the actions that professional traders take to mitigate risk.  As retail traders, we all must take the lead from what the institutions do.  75%  of the stocks will follow what the institutions do.  Market has sent us a very clear message.  

Happy Trading!

Amin