Today was a decent addition to the kickoff move, but it wasn't enough. I trust my market intuition probably more than I should, but something seemed wrong with this move so I took profit on my QQQ calls and VXX puts.
These results weren't spectacular, but they were wins, and that's what I try to focus on. Good setups where the risk is about .20 the reward. When you keep your risk/reward ratio low, even hitting 50% makes you money. I call these setups ELLIOTT HEDGED and I TRY to focus on these setups.
Why did I take these trades?
EW Theory along with short term indicators said it was time to take long positions on the market, even though the daily signals are still saying stay short. This could be a counter-trend rally vs. the ultimate downtrend, and today's action actually suggested that to me so I took profit. What's nice about getting quick, high returns is I can still get back in for an uptrend and make money without feeling like I'm chasing.
1. Volatility failed to produce a new high when the SP-500 produced a new low.
2. Sentiment, even on a short term basis, was heavily favored to more volatility. You can see this by just using the ATR (average true range) on index charts. There's no need to pay for sentiment indicators when you can gather the information when reading ATR correctly.
3. Tech has been the strongest index throughout this downtrend. I always want to get long the strongest and short the weakest. The weakest was the DJIA and that proved to be the best short of the main US indices.
4. It felt right. I had laid out my targets and the market actually reacted accordingly. It's not my job to tell the market where to trade, but rather decipher where it does trade. When the market reacts to levels I have highlighted, I listen to it. If it blows right through those levels, I try to figure out what it's thinking. I can't will the market to do what I wish, but I can "feel" if it's abiding.
Which brings me to why I closed my long positions.
I said previously that we got the kickoff move, and today was the follow-through of that move. My analysis and "feel" was correct. Today, I got a different "feeling", but this time it lacks analysis. The only analysis left for this move not to be ultimately bullish are the daily indicators, but even they are close to rolling over. What about the EW count? I came up with a short term bearish count where this is a B wave of a double zig zag. Under that scenario, today was either the top before another move to lower lows, or we'll gain a few more points, then drop. But who cares? Shorts are covered, longs are covered, and I'll wait for a new setup, because that's what I so. I identify great risk/reward setups and trade them.
I will put most of my account long tomorrow, at some point, either chasing or at a new low. I know the cycle high of the VIX is coming next week. A lot of other indicators show that a low (read bottom) is at hand.
Best of luck.