Thursday, March 13, 2014
Indices plunged over 1 percent today on above average volume. NASDAQ, most risk asset dominant index, led the decline dropping 1.46%. Could we be entering a corrective period? Let's look at the evidence at hand.
1. Markets were (and still are) overbought and are ripe for a pullback
2. Selling today was on heavy volume
3. On Balance Volume for most indices has rolled over to the downside
4. All indices closed below their 20 day Exponential Moving Average
5. Market Breadth Index, $VMBI, has rolled over and is giving us a Bear Alert.
6. Defensive assets have gained in price or held their ground. Namely
a. Treasuries had a tremendous day. TLT gained 1.35 percent on heavy volume, closing on a very bullish candlestick. A new 8 month high is now very likely
b. Gold/Gold miners broke out to the upside, also on very good volume
c. Real Estate (IYR) held its ground and only fell about a third of a percent
In other developments
EEM led the market to the downside with almost a 2 percent drop. Depending on tomorrow's close we are likely to significantly reduce our emerging markets exposure.
Natural gas extended its losses and closed below its February 27 low - we have added to our DGAZ position.
Oil may have found some support and now will likely rebound to around $100, but bias is still bearish.
Overall, we believe markets are headed south short-term. This is likely a correction within a bigger uptrend. We will be playing this correction by purchasing inverse ETFs with tight profit targets while reducing our long positions in equities.
Open positions: GDX, IYR, TLT, EEM, DVY, ETV, DGAZ (added to position), TZA (new position)