Weakening Wednesday - Failure At Dow 18,500, S&P 2,180

Includes: DIA, SPY
by: Philip Davis


One year ago next week, the market had a very fast 12% correction.

We've already sent out alerts to short the Futures.

Better safe than sorry in this market.

There's not much gas left in this tank.

Try as we might, we still can't get bullish on this rally. As I noted in Monday's live interview, it's a ridiculously low-volume rally and that's just not the way you make record highs that stick. It's actually more like the way that Banksters manipulate the markets to reel in the suckers to offload the last of their shares right before they pull the rug out from under the markets but, what do I know - we're only up 377% in the Short-Term Portfolio where I've successfully predicted every market dip since November of 2013...

This isn't about bragging, this is about establishing some credibility so perhaps you listen to me when I say THIS MARKET DOES NOT FEEL RIGHT. I've written extensively about what I think is wrong with this rally and so far, so wrong as far as getting a summer drop and it's August 10th and I said I'd give up and put some of our cash ($470,376) back to work.

Click to enlargeBUT, there are still 21 days left in August and last August 10th we looked pretty good too and all seemed very well until August 14th (Friday) when suddenly, on Monday the 17th, it wasn't. That led us to a horrific 250-point (12%) slide in the S&P in just over a week which tested the 1,850 line where we decided to BUYBUYBUY at the time - so it worked out great for us because our headlines were self-explanatory:

People are starting to FREAK OUT!

It's been so long since we've had a good old-fashioned market correction that many "investors" think the World is ending and are selling everything that isn't nailed down. Of course, in some cases they are right - especially if they are the kind of momentum chasers who piled into Netflix (NASDAQ:NFLX) at over 250 times earnings or Tesla (NASDAQ:TSLA) about the same or Amazon (NASDAQ:AMZN) at 100 time earnings as they looked to carnival barkers like Cramer and Co. to hit the noisemakers and tell them how wise they were for following all the lemmings off a cliff.

We nailed the bottom on Aug 24th and there was plenty of time to buy as we only bounced into Sept and then tested the lows again by the end of the month before racing back up in October, which we also called. Again, not bragging but how else to get you to listen when I say "I DON'T LIKE THIS MARKET AND I THINK YOU NEED TO BE WELL-HEDGED OR IN CASH!!!"?

Maybe I'm wrong - HOPEFULLY I'm wrong but it doesn't cost much to be wrong when you are cautious compared to what it costs to be wrong when you're not. It's not like we don't have any longs - we still have 39 long positions in our Long-Term Portfolio but they are well-hedged by our Short-Term Portfolio's decidedly bearish stance and they have kept us essentially even all summer and will hopefully do so in a correction as well.

We also have our Futures shorts and we'll be doing a Live Trading Webinar at 1pm, EST today where we'll go over Futures Trading Strategies and Techniques and this morning I sent out a note to our Members (and you can read it on Twitter or follow us on Facebook), laying out our shorting lines for the indexes today.

While the Nasdaq is at 5,225, the /NQ Futures are right on the 5,000 line and that's our favorite shorting line as it's an obvious stop above. Yesterday we ranged from 4,809 back to 4,783 and /NQ contracts pay $20 per point so $520 per contract up and down on that one. S&P (/ES) is another good short below the 1,280 line and, on the long side, we are playing Natural Gas (/NG) off the $2.60 line.

What we don't have that we had last year was an obvious downside catalyst like China leading us lower. Also, the indexes are technically in good shape, not showing exhaustion in their patterns quite yet and earnings have not been as bad as expected so maybe we won't need our hedges - but I'll sleep better knowing we have them for the next couple of weeks, anyway.

Disclosure: I am/we are short DIA, SPY, QQQ, IWM, AMZN, GOOGL, TSLA.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Positions as indicated but subject to RAPIDLY change (currently mainly cash and an otherwise bearish mix of long and short positions - see previous posts for other trade ideas). Positions mentioned here have been previously discussed at www.Philstockworld.com - a Membership site teaching winning stock, options & futures trading, portfolio management skills and income-producing strategies to investors like you.