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Another beautiful selloff which didn’t fail

In my last post I wrote about my bullish view expecting the sell off to finally end and the market working on a reversal. The reason for it was a nice and expected bullish candle formed at the bottom of the expected range.

It didn’t last long and we saw additional over 3% selloff. The market got hurt badly. The damage is so severe that it is no longer obvious whether we are still bullish or at the beginning of a bear market.

It is now a failed breakout or at least it does look like it:

 
Trading Results
 

Can this failure be saved?

I hope so but I do not know. I do not know the future and do not want to predict it.

At the market and among the analysts, we now have two sides each saying a different thing. One camp says “we are rolling into a bear market”, the other “this is a typical October mid term selloff”. The rest of us is left waiting which one will it be.

Our economy seems to be still strong (as FED believes by raising the interest rates). But is it?

Would a market really crash in a strong economy? Or is this economy not strong, just an illusion which will crash in the next 6 months too?

Or is this market seeing a liquidity issue due to QT (quantitative Tightening)?
 

I still see the market:
 

long term (>5 years) = bullish
mid term = (1 – 5 years) = bullish
short term = (0 – 1 year) = 50/50 bullish/bearish
 

We just need to wait for the next outcome. No new trades on my part, just managing the old trades only.

Last week, the market went from bad to worse. This again resets my “correction” tracker increasing the level of this correction from 8.5% to 10.6%, 35 days length, and 2628 lows:

 
Trading Results
 

Last time, I said “If this was really the bottom, expect a recovery”, today, I am not sure which is it. Are we done with selling or is more selling to come?

We do not know.

This selloff took a significant toll on our account net liquidation value. It is because all our put trades are now in the money!

Yes, they are all at full loss.

Last week, we rolled our Iron Condors down (lower) lowering our in the money put spreads and offsetting the cost by lowering the calls too. This resulted in a nice credit income of over $6,000.00 dollars. But our net-liquidation value took $11,000 decline.

 
Trading Results
 

People think that my accounts and my trading is bad because my account is down. But it is down not because I took losses by closing my positions. It is down because our puts are in the money.

We keep our trades rolling so yes, at this moment we are closing old trades at a loss but we are opening new trades completely offsetting that loss by bringing in more credit and giving ourselves more time to recover. We are still bullish long term. And even if this market goes to a 20% or more correction (bear market), it still will not be a secular bear market! And even if it lasts 150 or 200 days to recover from 20% or 30% decline, we are OK to wait for recovery and keep adjusting our trades accordingly during that time.

 
Strategy for now?
 

1) As an option trader – I will wait. No new options trades but managing the open ones only. The market seems to be in a point of indecisiveness. It goes up and down violently and in my opinion difficult to trade safely. Thus I want the market to provide a direction first. Until then, I will be managing the old trades only.

2) As a dividend investor I will be taking advantage of the selloffs and buy more shares of dividend growth stocks.

 
Trading Results
 





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