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As soon as S&P 500 touched 200 DMA investors jumped in in a fast and swift buying and propelled the market up pairing almost all intraday losses.
The 200 day MA seems to be holding as a support for now as we bounced. If the support holds we may see more buying coming in and we may be on a path of a recovery. But I still expect a lot of volatility and choppiness before we find a proper direction.
As a trader, I am staying out meaning no new trades but managing the old ones. I am preserving a capital. I might be opening a new trade only if safe.
As a long term investor, I am adding cheap stocks to my portfolio.
Stay the course and stick to your plan. Let other panic.
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The market opened relatively strong luring investors getting in just to toast them later afternoon. But volatility and weakness returned and the market lost another 37 points adding to yesterday’s 100 point losses.
S&P 500 is now down to 2,546 losing 37 points (-1.43%), DOW is down 23,512.49 losing another 347.97 points (-1.46%), and Nasdaq is down by 127.08(-1.88%). This is a second day of a correction deepening it to -11.13% from all time high.
We are now approaching 200 DMA which may work as a support:
A typical correction is 13% and it will take 4 weeks to recover from the correction (so the seasonal patterns say). Expect more pain in the next few weeks.
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The stock market is plunging on rising interest rates worries, but perhaps investors shouldn’t be so concerned.
A stronger-than-expected jobs report and wage number on Friday sent interest rates higher, sparking a sharp 6 percent sell-off by the S&P 500 over two trading sessions. The market is dropping again Thursday.
Traders are concerned the Federal Reserve may reduce its monetary stimulus and increase interest rates more aggressively as the economy continues to strengthen.
Major periods of rising interest rates
Using Kensho, a hedge fund analytics tool, CNBC looked at what happens during periods of major increases in interest rates using the 10-year Treasury yield over the last 30 years.
The findings show there were six periods with major rises in interest rates in the last three decades. The market rose big during five of those instances and only fell slightly during the one lagging period.
The S&P 500 rallied 23 percent on average in the time periods.
CNBC also looked at the sectors which climbed the most during the rising interest rate time frames.
The screen showed technology stocks did well, followed by consumer and financial stocks.
Investors are freaking out this month, but higher rates have been good for stocks in the past. Or at the very least, stocks were able to rise alongside higher rates.
Likely because accelerating economic growth was pushing earnings higher at the same time.
Past performance does not always equal future returns and of course it could be different this time.
But in the past, higher rates didn’t equal lower stock returns.
S&P after big single-day drops from CNBC.
Disclosure: NBCUniversal, parent of CNBC, is a minority investor in Kensho.
Source: CNBC
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The market just entered a healthy correction when it felt for second time more than 100 points in a day (-3.75%). Unless you got caught in a wrong trade this sell off is a great opportunity to buy more shares of cheap stocks.
Unfortunately, people blow up their accounts or are fully invested and they cannot take advantage of this event. To many, the correction look more like a crash (to me too in fact). And many got scared. Many now think, this is the end of the world, bear market from which we will not recover.
But this is not an end!
I met an investor who asked me to trade his account, so I did. Everything went well until this correction hit the markets and everything went south. He said, he could no longer bear the pain and he closed all his positions. Realizing huge loss. Panicking.
But there is no need to panic. This sell off is not the end of this bull market and we will see more growth. We just went so up lately that this correction was needed.
If you are participating in the markets, you must have a plan! You must know what you are doing! Many people out there have no plan! A few do, but do not stick to it.
There is a saying: “Everybody is a long term investor until the next bear market.”
Don’t be one of them!
If you are an investor, have your goal in front of you during the days like this. Remind yourself about your time horizon for which you are investing! If you are an investor, you are not in the markets for the next 20 days! You are invested for the next 20 years! Have that always in your mind!
And if you are in the market for the next 20 years, then sell offs like this is nothing, it means nothing but it creates a great opportunity to be buying cheaper. Or at least reinvesting your dividends cheaper!
Let me repeat it:
Long term investor – stay invested, do nothing, do not sell, buy more!
But make sure you are buying a good quality stocks, dividend stocks! Do not listen to anyone who says dividend stocks are worthless and that they won’t make you enough money. Those who say this do not understand how dividend stocks work.
Here is my dividend stocks watch list. I do not even know which stocks to choose from. All are in a correction mode and great candidates to buy:
I wish the list would stay like this longer so I can keep buying high quality stocks.
And what if you are a trader?
You too have to have a plan! And strictly follow it. In my last post I wrote about selling options with delta 16 or less and people kept telling me that I am wasting my money, risking too much to make too little.
A few years ago I would agree with them.
Not anymore. I came to realization that I want to make money but I want to make money safely, preserving capital. Capital I used originally to trade and capital I made.
After a week and a half of large losses the S&P 500 entered officially correction.
The market dropped -10.13% today.
And thanks to my delta 16 options I am still alive.
Of course, it is not just the delta which helped me to sustain this carnage but also my money management and strictly investing no more than 50% of my available capital (although today many trade repairs ate much of the capital, I am still near 50% limit). And I am still floating!
Although my “ship” looks like this after a week in the markets:
But, if you are still floating, you can repair your ship and continue the journey. How do you keep floating? Stick to your rules to overcome the bad days in the market. Use margin sparingly mainly when the market makes new highs, do not over trade, and do not be greedy! I sometimes struggle with this and later I regret it.
If you follow my blog or Facebook group you know that I was guilty of over trading my accounts. And I paid dearly for that!
As of today, most of my accounts are now back on track and protected. Even with this huge selling, I should start making a progress towards my trading to independence goal.
The good thing on all this is that VIX didn’t spike too much (very little gain compared to Monday’s “crash”, higher than yesterday but only by a small margin and definitely not matching Monday or Friday levels) so this leg down looks more like a standard re-test of the previous lows. Usually, VIX will start making lower highs although the market may continue making lower lows but this is a bullish sign for the market.
We have officially fulfilled a 10% correction today and although we may see some downward drift smart money will be buying here (and I dare them not to).
There is an analogy to 1987 market when Reagan cut taxes (in 1986) and it propelled the market to all time high after that well into 1987 so we may expect Trump’s tax cut to have a similar effect. If so, we will see this market going higher to ATH one more time before it finally loses steam and possibly reverses into a bear market.
So, now, it is about surviving this turmoil without a big damage (bigger than your account can handle) and later we will see some nice relief and those who remain standing will see nice profits. But, be aware, we are most likely in a final stage of this bull market.
As of now, my IRA account lost over $14,000 dollars of paper losses. I didn’t close any of my positions for a loss. I rolled my trades down as much as possible. And i am closing my trades for a profit or they expire worthless. And I fight to keep those trades up and floating. And once this selling is over, and it will be over, the account will once again return up to its original value (provided I will not have to close the trades for a loss).
Stay safe, stay calm no matter how difficult it may be or seem to you. This selling is temporary and it will not last forever.
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As a homeowner, have you ever made an investment or upgrade to your property that others seem to question? Your home is your castle to do with what you want, but in making the right upgrades and investment choices for your home, you won’t just enjoy short-term benefits. You’ll be adding to the resale value of your home as well. Some of these upgrade choices that can increase home worth aren’t immediately obvious. Some may even seem counterintuitive. Read on to learn how to pick investments that everyone considers a winner.
Yes, it’s a good deal cheaper to buy the supplies and paint those rooms yourself, but despite those hardware store commercials that make DIY painting look fun and effortless, most efforts look fairly amateur. And even if rooms are painted in neutral colors, potential buyers can be turned off by the appearance of a home in general by badly painted rooms. Other advantages of working with professional painters include speed, avoiding damage, and getting guidance on paint choices that are easy to maintain and durable.
No, you’re not lazy in seeking the services of a professional landscaping company. Regular attention from the pros means a healthy yard that discourages invasions from undesirable plants and prevents erosion. The assistance of landscapers means that planted trees and newly established gardens are more likely to survive and flourish, providing an attractive outdoor eyeful to prospective buyers. It’s a good start to help your home for years to come.
If you live in a quiet and crime-free neighborhood, there may not seem to be a practical need to install a home security system. But unfortunately, these neighborhoods are very popular with thieves. And in addition to deterring or catching burglars, home security systems have features that detect and report fires as well as summon emergency services for impaired members of the household in an emergency. Some even have added head sensing smoke detectors that can alert you before a fire starts.
If you’re planning to invest in remodeling in order to sell your home, you might as well go big, right? Actually, a 2015 study conducted by Remodeling Magazine revealed that prospective buyers found smaller upgrades more attractive than large ones. So before installing that granite kitchen island, perhaps consider simply repainting those kitchen cabinets instead.
Wall to wall carpeting is so 1980s. And if refinishing floors wasn’t easy, why do those stores rent sanders? But it should be noted that work done with this equipment by DIYers has resulted in everything from badly uneven surfaces to house fires. Not only do professionally done floors look fabulous, they guarantee floor preservation for decades, not to mention protecting the rest of the house.
“Bad” home investments are ones that threaten lives or property. They are ones that drain bank accounts without offering returns or pleasure. Otherwise, well-educated homeowners should be willing to boldly explore a variety of investment options for their property.
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This was an ugly day today. But honestly this is good for the health of this bull market as we were pretty much in a parabolic move and correction is needed. It would be nice and healthy to retreat all the way down to 2700.
Sometimes people ask me why I am selling 16 delta puts (or calls in that matter) and not higher delta and collect more premium.
Well, today’s market price action is a perfect answer to that question. In A bull market with a lot of complacency it may pay off to go closer to the fire and collect more premium but in a normal and volatile market, it can burn you alive.
1% or more drops are nothing unusual (recently see 2015 market behavior). If I was selling delta 30 puts, today I would be toasted already while my 16 delta trades are still OK. They are not anything I would be dancing of happiness about but they are still in good shape.
Just a year ago I myself was chasing premiums too. I was trading options against stocks which offered great premiums and I was pretty much at the money ATM all the time. It wasn’t unusual for me to collect $400 per contract or more. I made tons of money. Until one day, I had to give it all up.
I forgot one thing when trading – safety.
You trade to make money, but it is not the goal. The goal is to preserve capital, save the money and not lose them by reckless trading. Remember Buffett? He says – “Never lose money, and second rule, never forget the first rule.” Why should options trading be any different?
If you remember the first rule and preserve your capital when trading, the money will come. And once they come, preserve them.
Chasing premium is like chasing yield. I once did the same mistake as a dividend investor and bought stocks which were paying great yields. Until one day they cut the dividend and I got nothing and lost money on a stock which dropped. High premiums are not necessarily safe as well as high dividend yield.
Stay safe and preserve capital!!
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