“Stairs Up and Elevator Down”

What an ugly trading session today and a miserable start to the week. Last Friday’s trading session was an indication of selling pressure picking up with the SPY closing beneath the 8EMA on heavy volume as seen below.

SPY daily chart

Today’s session opened lower and continued going lower throughout the day, with a flash down happening around 3:11pm followed by a slight recovery only to find stocks settling at or near lows into the close. Some Dow stocks like AAPL and INTC were green in the morning and by the afternoon became red like the rest of the average. The S&P closed -4.18%, Dow Jones -4.6%, and Nasdaq -3.78%.

SPY Intraday chart

This brings the overall markets trading back where we were in the first week of December. Not the end of the world, just retracing a couple months of action. After all, with double digit % gains in 2017 it has to be expected to enter a correction, I just don’t think anyone was expecting such a sharp pullback less than two weeks from making new all time highs. Am I saying the selling has stopped? Absolutely not, in fact there was lots of chatter on Twitter today about the XIV Inverse VIX falling 14% intraday and then absolutely crashing after hours over 80%. Ouch. Some speculating that there could be further selling into tomorrows session as a result.

XIV snapshot

As I’ve only been trading stocks for a couple years, I can hardly recall a day with such heavy selling and fear in the markets as today. Maybe the flash crash in Aug 2015? At any rate, I’m not going to let the noise from today interfere with my strategy: buy multi week/month breakouts forming on high volume. I’m currently holding two stocks, ERF and ORIT, and will respect my stop price if it touches. In scanning for new positions, I think it’s important to be more selective with overall market conditions more volatile right now and consider position sizing a bit smaller until things level out a bit.