"IF YOU STAY IN THIS LONG ENOUGH SOMETHING LIKE THIS HAPPENS"
Of course this is a line from Top Gun after that crash where Goose was killed. It applies to a bad call I just recently made, let's review it.
If you read my Monday post at the end you will see that I thought we were going to bounce in the currencies due to how prominent POIV was diverging in many of them. It still is. However, just as with any other indicator, this one is not always correct. It was wrong here. I did not go back into this market because of the divergence that had showed up on the bullish side, so I have missed this trade now. As I compose this it looks like we could have a big slide tomorrow across the board but of course the overnight reversal possibility is always there. There is certainly never a dull moment sleeping any more.
It remains to be seen if what POIV is showing will result in the market holding here, but it does appear at the moment I might have blown this one. As to my stop being where it was, I stand by that decision. I never allow a profit that big become a loss. The best trades generally just go right away. The ones that have a good move then immediately retrace, are in general not as good even though some do wind up working out. What to do now?
If you have been reading my posts over the last month or so you know I had been looking for a mid month dip this month, I still am. Part of trading is getting knocked down and getting right back up. The Russell chart below shows a decent sell setup with one fly in the ointment, of course it is the same fly that plagues the currencies, POIV.
We have a nice trend line up that will break tomorrow if today's low gets taken out, and it is paired right with a good seasonal tendency for a drop. We technically do not have divergence by the strict rules in POIV since the lows have been higher and so has the indicator. However, it has been leading, and this is bothersome to me. Since the indexes, currencies, and metals are basically the same trade, I think Copper could be a possible answer to this dilemma.
Copper has been making low highs and lower lows here while the indexes have been doing the opposite. Also, POIV is behaving itself here. The price of Copper has even been lagging to some degree with some exceptions, on the strong up days. This is one possible way of playing an index decline if you are not comfortable shorting stocks. As I stated the other day I list all the possible trades and then start paring them down trying to find the best of the groups that I think are correlated. This does seem to be the weakest to me of this group. Silver looks good to me also, but we are fighting a pretty strong seasonal tendency here, so that is a questionable trade. Copper is much weaker, so if you want to sell the metals, or find a correlated trade to stocks, this is one to consider.
This whole situation could be very tricky, and what we could have with POIV looking like it does in these other markets, is a quick sharp dip that reverses pretty quickly.