Short Positions Stopped Out

Wait for the next opportunity. As long as markets exist, there are always opportunities. The important thing is to stay alive. Markets can stay irrational longer than you can stay solvent.

Why this is not a typical post-war recession

What is so unique about this recession? High unemployment and de-leveraging of the consumers. The US unemployment rate has been this high only once in the early 80's. And consumer credit has never contracted as much as this time. This isn't technical analysis. But during the past 60 years, this is the only time consumer credit has contracted to a level below its 50 month moving average.

Unemployment Rate

Total Consumer Credit

Market Update

Markets in general are in neutral mode with a slight edge to the upside. SPY, IWM, and EEM are all sitting right at the channel's upper trend line. SPY and IWM are also right below the 200D moving average. A break of it and last week's high signals more upside and test of early August's highs. On the other hand, if the market fails to break out in the next couple of days, we will come back to the trading range.

Short Signal Triggered

After falling out of the steep up trend channel since 08/31 and failing to make new highs after two days, a short term swing short signal is triggered. Is the market overwhelmingly bearish? No. But I'd say that odds of further decline from here is 50/50 or better. The reason I like to short here is because of the high risk/reward ratio of the trade. Stop loss should be set to 9/3 highs. Therefore, as long as you control your risk and cut loss when you are proven wrong, potential loss is very limited.

Market Update

World markets have rallied sharply in the last week on the back of not-so-negative economic data in the US. With such strong moves within such a short time, markets are short term overbought and are hitting important resistance.

SPY is hitting the upper range of the trend line since April. Plus, it's sitting at the psychologically important 110(1100 for S&P) level. It has failed to successfully break 110 twice in August. For aggressive swing traders, a short position can be entered on Tuesday if Friday's high isn't breached.

Small cap IWM is currently above the trend line, barely. If it doesn't fall back into the range in the next two days, that's a very positive sign.

Like SPY, emerging market EEM is also hitting the upper range of the trend line. It's been trading inside a symmetrical triangle for the past few months. As the two triangle lines converge, EEM will break out one way or the other. For prudent traders, there is no need to jump in before the direction becomes clear. You want to make only high probability trades when the trend is clear.

Lastly, the Japanese yen has been in a strong up trend(the chart is yen/usd) since May. But its speed of appreciation has slowed lately. Let's see if a change of trend is coming.