Pre-Market Weakness

Nice win for “da bears” yesterday, with another close below the 20 day moving average. Stocks bounced sharply off psychological support at S&P 1300 midday, but closed relatively weak. This morning we are seeing a rare event – premarket weakness. Indeed this entire week we’ve seen this, which has been so rare. For the first time in a long time, we can call stop calling this the unshortable market. As mentioned yesterday, shorts can continue to play this market to the dark side, versus the 20 day moving average as a stop out level, currently 1315. If the S&P 500 can fall through yesterday’s lows today or tomorrow, a move to the 50 day continues to be my near term goal.

What I’d normally do at that point is lift shorts, and then only re-engage them below the 50 day moving average if and when; otherwise that would be the quick and dirty correction everyone has waited on and off we go back to rallying. At least into a reflective bounce. Also continue to be aware the “first day of the month” hits next week, and has been a source of danger for any shorting – if we see a bad first day of the month, this would be another psychological change.

The long dated VIX calls I recommended buying as a market hedge in the low 17s/upper 16s, six to eight weeks ago also would be paying off substantially here. My goal with these was an eventual move into the low 20s which has finally paid off. Actually, trading those between 16s and 18s has been an excellent trade a few times this year already, but now this is icing on the cake.

As with Tuesday, there was a lot more damage in the high fliers than in the major index… so many charts have so little support since they had gone parabolic, so this is the other side of momo investing. When it turns, it turns fast.

No need to hash out oil, obviously the higher it goes the more that 2% payroll tax reduction of 2011 gets sucked into the pockets of our friends in Canada, and over in the Middle East.

Strangely, the U.S. dollar does not appear to be catching a bid as a safe haven trade – instead the money flows into gold and silver. Maybe the first chink in the reserve currency or fx traders might be sanguine about the Middle East/Northern Africa issues.

About Mark Hanna 543 Articles

Affiliation: Hanna Capital, LLC

Mark Hanna is President and Owner of Hanna Capital, LLC, a registered investment advisory firm. Mark has been a follower of markets since the late 80s, with a focus on individual equities since the mid 90s. He has been a well known commentator in the financial blogosphere for the past 5 years, following a career in corpoporate finance and accounting. Mark attended the University of Michigan where he graduated with a degree in Economics.

As an avid reader, Market Montage is the personal blogging site for Mark to share his views on economics, markets, and the like. Occasional cynicism and wit shall be deployed in his postings.

Follow Mark on Twitter @fundmyfund.

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