Published on August 11, 2017 @ 9:57am
A horrific day for the markets yesterday, but you all know we saw this coming. Ex utilities, just about everything got clobbered. And, we do believe there could be more downside ahead before the markets could be in a position to resume their longer-term trends higher.
With that, if you're looking to insulate yourself a bit from what could likely continue for as much as another few hundred points to the downside on the NASDAQ Composite, you might want to have a look at XLU, the primary ETF tracking utilities - as it looks to be on the verge of moving higher in the days and/or weeks ahead.
Even if the markets bounce and XLU moves lower in the interim, it does appear any weakness in XLU is likely to find some support - especially once the major indices have bounced a bit.
The major indices still continue to point to lower levels ahead on a short-term basis. Our first line target on the NASDAQ Composite was already achieved yesterday, so now we'll point to our next downside target of roughly 6,200, and then ultimately just below 6,000 when it's all said and done.
Anything can happen between here and there, as we do expect continued volatility in both directions, so it's important not to chase anything higher or lower at this point. Meaning, if you haven't got short the major indices yet, now would not be the time, because the NASDAQ is now very close to a level, whereby we should see a bounce.
It will be the breadth and strength of that bounce that's likely to tell us what's next - and potentially another opportunity to get short the markets.
Although the financial media is blaming the recent move on Trump and North Korea, we clearly saw this coming well before that news started hitting the wires, so it's important we don't get caught up in all of the rhetoric.
These markets had technically achieved extremely logical reversal levels, and that's precisely what we attribute the recent selloff to. Fundamental valuations have also gotten a little long in the tooth for many of the big tech names, so that too appears to be adding fuel to the potential downside.
The bottom line is we agree with something Art Cashin said on CNBC just this morning - if bombs starting flying, buy the markets because if it ends up being real, we'll all be dead anyway. However, if the scare settles - which we're convinced it will - the markets will likely have achieved levels that present a buying opportunity - not a selling one.
Like we said yesterday, there's always the distinct possibility of a reversal back to the upside at either of those two key levels mentioned above. But, if we can get a breach of that 6,000 level to the downside before the markets finally do decide to settle, the move may end up being one of the better buying opportunities we've seen in a while.
So, if you've gotten short the major indices via getting long some bearish leveraged index ETF's like SQQQ or SPXU per our recent analysis, you've already done very well. Just remember to keep a tight leash on things in the event the markets reverse themselves sharply back to the upside. In other words, employ some sort of mental stop loss with any bearish ETF's to protect at least some of those gains.
Oil is starting to shake bulls again - something we've been expecting for a few weeks now - once again making the bearish leveraged oil ETF in SCO attractive on a near-term basis. Gold too may well be approaching levels worth an inverse speculative trade via DGLD and/or DUST - especially now that the primary ETF tracking gold in GLD has found its way back up against a few previous resistance levels.
However, we'd still like to see a technical reversal signal confirmed in the dollar before we'd have any sort of strong conviction to strongly either of these bearish trades. Assuming the U.S. Dollar Index can close anywhere below its 3X3 DMA (blue line) on this daily chart below today, which currently sits at 11,938, and more importantly can close back above it early next week, the potential reversal signal will have been confirmed.
It would be at that point additional technical context would support potential reversals to the downside in gold and oil. Let's see what happens with the dollar first though.
Individual Company Idea Updates:
Actions To Consider Today:
Hold SQQQ and/or SPXU in anticipation of potential lower levels ahead - just make sure to move your mental stop in either idea up to levels that ensure at least some nice gains there.
If you have any questions or would like further details regarding any of the information provided above, please call your Rep - 619-369-9316.
Have a great weekend. We'll see you on the other side.