There is one rule about the market which is inviolable: Bears wait until you are traveling, preferably in the air before attacking. While we were returning from holiday on Kauai they mauled the market and are continuing to maul it today. We were partially hedged, and put on more hedges today, using SPXU the inverse ETF on the S&P. We may add to the hedge on the close. The seriousness of the attack is marked by extreme volatility (exaggerated power bars) and the breaking of a (m/l) 70 day trendline (about 4 months). Highlighting the danger is the proximity of the nov12 trendline. If the market bounces over the next few sessions no big deal. If it breaks the nov12 trendline be prepared for a painful downwave.
Reader options are these: 1. Watch with interest and be prepared for a moderately painful downwave, which will become a buying opportunity. 2. Hedge with a reverse ETF (SPXU- 3X) (SDS – 2X). 3. Buy puts (at the money) 3. Lighten up your position and gather cash for the buying opportunity.
This letter is sent during trading hours so that readers may take action today if desired. A longer letter will come on the weekend.