Daily Update: Dead Cat Bounce


No new system trade signals for Thursday. 



The market averages dropped on average of 10-12% from their late September highs into Monday's low print. From those lows a steep two-day rally has taken the market up about 5%, but that still leaves the market 7% off of its highs. In addition, long term trend lines have been broken across every major index. All of this adds up to a compelling case for a "dead cat bounce" which will be followed by a drop below Monday's lows. In addition, market sentiment remains at levels associated with market tops, not intermediate term lows. 

No one knows what the market will do next.*** It can run up to new highs and beyond if it wants to. All we can do is assess the most likely probabilities, and the evidence all points to the nascent stages of a bear market. The path the market takes to play out that fate is anyone's guess. For now, we follow any new signals (either up or down) while recognizing the weight of the evidence points to lower prices.  Exposure to the short side, in addition to the system signals, remains a high probability trade. 

In the shorter-term service 3 trades were triggered late in today's session which may be an indication that this counter-trend bounce may be nearing an end. That doesn't mean it will turn back down on a dime, but it adds to the evidence that the larger trend is still down. 

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Russell 2000 - Weekly


Updates System Trades - Standard

The PXD Sell was a loser for us last month. We had a Sell on Sep 21st @ 172.12. The Oct $170 Puts were bought at $4.80 and expired at $3.50. The stock hit $140 on Monday, meaning those puts would have had $30 of intrinsic value had I only recommended the Nov instead of Oct expiration. Unfortunately, Nov expiration wasn't available until the next Monday, Sep 24th. Moral of the story: Close only counts in horseshoes.