Margin Selling Climax “Throw the Baby Out With the Bath Water!”

Margin Selling Climax

Margin Selling Climax

Only time will tell if margin selling reached a climax yesterday. Indiscriminate selling across all sectors and industry groups became very obvious at Thursday’s closing bell. Really strong companies, with excellent balance sheets, earnings, and increasing sales were sold along with the less desirable.

We’ve all heard the phrase, “this time is different.” No, it’s not. It’s exactly the same, only catalysts change. Furthermore, the markets will come back from this correction; it’s merely a timing issue now.

Price-earnings ratio PE will change or reset on this pullback. Earnings and are sales good. With stocks trading at a discount to 52-week highs, now is the time to create your shopping list.

If you followed our lead, selling common shares into strength during the month of January, you will have the opportunity to buy shares at a discount. Nearly every major SPDR sector is oversold and about to start a cycle up from the green zone. Be ready when the cycle starts to turn.

Banks will benefit from rising inflation and interest rates. The spike and velocity of change in the 10-year yield became the catalyst.

One only needs to look to the financial sector XLF is an example. Institutions will be buying “at a discount” and propelling this cycle in the opposite direction.

 

XLF Cycle Margin Selling 02-09-2018


Our signal to start buying financial stocks will occur when the cycle turns up like we see in the US Dollar (UUP) last week.


UUP Margin Selling Climax Cycle Up USD

Global Growth

Global synchronized growth will continue to provide opportunities, outside of the US. Emerging markets will flourish in this environment. While interest-rates exacerbated the recent sell-off, it was the speed or velocity that spooked the market.

Understand what type of environment you are trading in, especially when pursuing options or volatility instruments like VIX and SVXY. 

Monitor VIX closely. Once this volatility measure starts dropping the cycle will likely turn up quickly. We will be watching for a late day rally.

While we will be looking for opportunities, we will weigh whether to use options or common shares. With the increase in fear, volatility and put premium has spiked for many stocks. Call premium has collapsed. Time is what we need more of, so if you are considering options, time is your friend. Try to buy further out and give yourself time; think April, May or June.

SIDENOTE; Consider the price of put options as fear gripped the market. Now imagine institutions selling premium as fear spiked. They will be looking to squash volatility and keep all of that put premium sold over the last couple of days. This is one reason we are looking for a bounce. Look for VIX to drop in the short term. We think that could happen today.

Our strategy, starting new positions at 1/4 of the normal size proves to be the right strategy in the current market environment. While we do think the markets will rebound in the short term we are taking fewer positions and using smaller size to start.

Join us LIVE at 9:20 AM as we discuss this in more depth.

Happy Fry-Day,

Vinny



 

Markets at Short-Term Top and What to do Next

 

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Vinny Gambini

Trade Fundamentals w/ Technical Analysis - CANSLIM method using high probability setups and Ichimoku Trend Analysis. Architect, Family Man and Father of three.