The Coming March 9 2020 Morning Sell-off

I believe all have seen the markets selling off this eve.  For those who have been through 1987, 2002, 2007/2008, the Flash Crash, etc. this will not be as scary as to those that are newbies to trading.  Hopefully, since most HGSI users are active investors you have already taken profits and sold off or protected your long positions.

In my weekend review, I showed that we are likely close to a bounce.   We saw a rapid move up on Friday and whether that was infused by QE or short covering, it did suggest there is money to come in as we fall further.  

Coronavirus is causing hysteria in the market as well as everywhere in society in the US and worldwide.   Yet things have begun to stabilize in China.  At some point, they will stabilize here. 

Perhaps a bigger influence on the markets this eve is the collapse of oil prices after the failure of OPEC to reach limits on production.  Long term this can be a very positive thing for some of those industry groups taking it on the chin from Coronavirus such as airlines and cruise ships.   Short term this will add to the volatility as collapsing oil prices might impact on debt owed by US shale companies and further pressure the banks in the US and worldwide.

So how am I going to handle this? 

First I am net short.  I have a few uncovered long option positions but most are fairly cheap.  My big positions are still protected by PUTS.  I have multiple CONTRA ETFS as well.

So, a few thoughts from past learnings:

1. Assume all long positions with stops on will be stopped out at the open.   Stops do not mean you get your stop price.  If you have a market stop then you will sell at the low at the open.  If you have a limit stop then you likely will still have your stock as the price might blow right through your limit order.  IN times like this I usually take my stops off and reset after the open.  Since I was not going to get stopped out at a fair price, why leave them on?   If there is a bounce you can sell higher.  If the market keeps falling you have some risk so make an informed decision.
   
2. Turn on your trading platform first thing in AM.   IT is not unusual to be locked out in these volatile days as the system gets overloaded.

3. Start to build a list of great companies and look at prices that might make sense to buy them based upon prior support.  I have picked up some stocks on great sales on days like this.  I do not take big positions and I do not plan on holding forever.  I am talking about AAPL at $120, AMZN at $1400.  Deep discounts only…

4. Try and avoid FOMO (yes, talking to myself here).  Look for some evidence of a bottom before going in big.  There is no guarantee that this is over or will be over anytime soon.  I made mistakes in past compounding my losses by using up much of my cash chasing prices which ended up going lower.

5. Turn off the volume on CNBC.  I swear the gurus come in and tell you to sell when they are buying.  All the talk will just depress you and cause you to make errors.

6. Beware of Bull Traps.   Although I expect a rally at some point I am also thinking we are at high risk of entering a BEAR and can go lower.

7. Use your tools.  Go to lower time frames if you are keeping any positions and look for evidence of new base formation on intraday charts.  They may give clues as to new stop prices and potential long opportunities.

8. RELAX.   The world is not ending.  Coronavirus is temporary.  Low Oil prices are temporary.  Plus Uncle Sam will be here to help with FED increasing QE and lower rates.  Plus look for Trump and Congress in an election year to come up with some FISCAL Stimulus.

9. I am likely going to start covering my shorts or half of them at the open and start raising cash to be ready

Good luck

Jeffrey