Huge sell off today, and we are 4 points bellow the previous low. You may say 4 points is not a big deal, and indeed is not but the fact that SMA200 proved to be a huge resistance level for the second time in less than 10 days it's a big deal.
If market resumes the downfall on Monday I may go short again and by that I mean a decent move on the downside, at least half of what we saw today. I don't like to anticipate day-to-day moves (I suck at this) but somehow I do expect bulls to try to defend the lower edge of the trading range one more time.
Cash is still the best until market decides which way to go. I am sure there are people who are trading even in this environment but I am not one of them. If market is going to have another powerful leg up or down we will see the signs and there will be plenty of time to jump in. Better join later the crowd than going in and caught on the wrong side. Big moves once started tend to continue for a long period of time so there is no point to rush in. Capital preservation is my number one job and should be yours too.
QQQQ lost over 3% but did not establish new lows also managed the stay above SMA200. As I said the other day I liked to see NASDAQ climbing above the downtrend line but I didn't think this is going to be THE downtrend line since I didn't see DMI turning positive at the same time. We have now a second downtrend line. Is breaking this second downtrend line going to be enough to see bulls in control even on short term? Once again, we are going to get this answer from DMI.
I've seen people reading into these uptrend or downtrend lines more thay are supposed to do. For example going bellow an uptrend line doesn't mean the stock is going to plunge. This may happen but is not a sure thing. More likely that means the stock started to advance an a lower speed. When the stock starts moving up again one can use this new low to draw another uptrend line. That uptrend line can be broken again without seeing the stock plunging. A new uptrend line with a slower slope can be draw. Breaking the uptrend line for the third time is more likely going to be for real. The thing is you need to be cautions when you see the trend line broken for the first time since you may not the second or the third chance to exit. If it's a fake move then you will see the stock recovering immediately.
Once again I am emphasizing that bulls need to push the indexes back into the trading range. Otherwise, we are likely to see another leg down.
P.S. I was asked to give some advice to people who are the usual "buy and hold" type of investors, mainly 401(k) holders. I am going to post an article tomorrow (June 6) about the way I am investing in my 401(k) that is a bit different from my usual day to day trading.