Markets Rollover As Expected - What To Do Now

Published on October 19, 2017 @ 7:30am

Before we get into what's going on today - which looks to be extremely pivotal - we've gone ahead and closed out one of our open ideas in Medpace Holdings, Inc. (MEDP). We'll take the 12% gain, and free up more of an opportunity to take advantage of a potential market reversal - one that may already be in the process of finally developing now.

New highs on the S&P 500 and the NASDAQ Composite yesterday led to more pressure by day's end. Following gaps up in early morning trading yesterday, both indices moved lower on the day - despite the DOW making one of its biggest moves to the upside in months.

Again, the recent melt-up continued to create cause for concern - especially with the NASDAQ having gotten within just 34 points yesterday of our previously published target of 6,670. Now, with this morning's extremely sharp gap lower, this is precisely why we've continued to tread lightly over the last few weeks, and opted for much more conservative names.

Is today the first sign of that big reversal we've continued to suggest was looming? It's highly probable, however, we're likely to see even more volatility - both to the up and downside - before we'll be completely convinced the markets are on the verge of moving much lower.

We've continued to suggest trailing any gains in recent weeks with protective stops - as the risk/reward for getting too aggressively long anything right now continues to remain suspect.

You can see in this daily chart of the NASDAQ Composite, the primary index that has led these markets all along has broken down significantly on the open. Now, there's a few things that are likely to take place - either a continued move lower, or some big moves both to the up and downside before the potential reversal is confirmed.

Considering the markets are living breathing animals capable of anything these days, it's probably not prudent to assume too strongly what might take place over the next few days. However, we have been expecting today's move to happen as the NASDAQ moved closer and closer to that 6,670 level - a target we were sure would serve as some resistance. It just so happens the move came just shy of our target.

Now, traders may want to add some bearish exposure on a short-term basis via SQQQ, or some slightly out of the money put options on the QQQ's a month or two out. If you don't know the options game though, now's not the time to learn. You can simply pick up a little SQQQ, which is the bearish leveraged ETF tracking QQQ.

Just make sure you don't get too overly aggressive, as we mentioned above the markets could stage some pretty big swings in both directions before we'll know if today's move is the big trigger for these markets to pull back now.

The bottom line is the markets can simply continue to break down from here, or potentially get extremely volatile in both directions first. We'll see, which is why we suggest treading lightly. However, we've been anticipating this move for weeks now, so it really should come as no surprise to any of you who continue to rely on our daily newsletter to take advantage of short-term index and sector based ETF opportunities.

In other market activity, we're seeing a potential pivot point developing in the dollar too, and depending on which way it goes as soon as tomorrow, the dollar's next move is likely going to assist gold's recent rally, or serve as resistance for the precious metal.

You can see in this daily chart of the US Dollar Index below, although the dollar staged a pretty decent reversal recently - another move we called weeks ago - our currency could be on the verge of breaking down again. Following its recent short-term high, the dollar started drifting lower. However, it rallied and found its way back above its 3X3 DMA (blue line) a few days ago - all pretty normal activity.

Should the dollar break down further though, and more importantly the US Dollar Index closes below 11,931 today or tomorrow, we're anticipating a resumption of its longer-term trend lower. And, if that ends up happening we don't see how it won't help gold.

With that, we continue to suggest near-term exposure to GLD or UGLD, its bullish leveraged counterpart.

Actions To Consider Today:

Trail gains in any individual company ideas with protective stops you're comfortable with.

Exit MEDP, or move your protective stop way up to ensure gains.

Buy and/or hold UGLD and trail gains with a protective stop at or slightly above your original entry price.

If you haven't already, consider nibbling on SQQQ or some slightly in the money QQQ put options a month or two out - with the intent of building a modestly bigger position should the NASDAQ snapback over the next few days.

Individual Company Updates:

None

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If you have any questions or would like further details regarding any of the information provided above - or anything else you're thinking about buying or selling out there - please don't hesitate to call your Rep . at 619-369-9316.