EMERGENCY SESSION - Is The Downturn Here?

What a close today, the hard part of sending out recaps intraday is the market session does not close there and because it takes me almost an hour to gather everything to put in the recap, I start writing it up well before I hit send. The overall market view is the first thing I write and today things were fine early but they completely fell apart in the afternoon and now we have some major issues facing the long trade.

We knifed through the 100 day on the SPY and closed below it, this is a big deal as we completely broke down out of that bear flag I mentioned earlier in the day. Now all those moving averages above are going to be stiff resistance on a push higher. As they begin to slope down you get all pops sold. This is suboptimal for bulls.

We have not closed below the 100 day on the SPY since last August in the crash we had, here is the chart below, that was a different time with the election a couple months away and we instantly bounced back. This time we have no earnings from the megacaps to save us and it feels completely different. As I said earlier, the good news here is we aren’t too extended from the 200 day, around 4% lower and that should be a spot where many load up if we get there. If that breaks, then we have a major issue.

The bigger concern for me is this weekly chart below, at the moment we are below the 21 ema on the weekly. We have not closed below that since 2023 and if we don’t get a nice bounce tomorrow, this is a major change of character. If that holds, you would want to remove almost all the leverage you’re uncomfortable with and buckle up because we’re likely in for a multi week/month move lower.

So what is the point of this email? It’s just me letting you know things are clearly changing. You’ve heard my tone for weeks and you’ve seen my positioning in TLT for the last 2 weeks getting ready should this occur. TLT is up even more to 92 today. I know I said today that I wasn’t planning on making any changes to my book but late in the day when I saw that 100 break and near closing, I closed up a few of the short puts I had left to clear out the margin and used the rest of my remaining cash to add TLT. I have this monster position now and while it won’t be a straight shot, I do think it is the place to hide until the market settles down and reclaims some of these moving averages. One of the things traders make mistakes doing is catching falling knives.

While I’m sure all these big tech names will be materially higher say 24 months out and buying today isn’t the worst idea, I would prefer to see markets settle down and reclaim some key spots. One of the things you’ll notice with me whether its my AMZN trade or my recent META risk reversal entry and exit or even my TLT entry, its that I am very mindful of taking big positions, but when I do my timing has to be almost perfect because in any trade, if it doesn’t work right away, you timed it wrong. I think I made the right entry on TLT 2 weeks ago and I topped off the trade today as I felt we have some prolonged ugliness ahead of us. As long as you don’t get reckless buying calls, you will survive this, hopefully you too hedged with some TLT recently.

The key to outperforming is simply understanding when a downturn is occurring and not pressing your chips in that situation, there will be a time to be recklessly long again, it probably won’t be tomorrow or next week, but as long as you prevent yourself from blowing up in these little rough patches you will be fine. So tomorrow, assuming late in the session we are not reclaiming the 21 week which is currently at 589.58, you want to lighten up on your longs, sell covered calls, whatever you want but make sure you’re not overlevered. We’ve had an incredible 2 years, this is really the first rough patch we’ve faced in a while and if you’re positive YTD count your blessings, I’m very fortunate I closed up all my long trades a couple weeks back as it saved me a fortune and the switch to the TLT long definitely did its job minimizing losses in my book vs my short puts these past 2 weeks. Could I have played it better by having no short puts? Yes, but my objective with these leaps was long term capital gains 12+ months out on names I wouldn’t mind owning at those levels. So a good chunk of the puts were sold in January before most of this mess and like my AMZN trade, the reality is if you’re holding a long term trade, you’re not going to watch it go up in a straight line.

Please be careful is all I want to say, the up almost everyday market is over. There is all sorts of stuff going on with tariffs, bad data, and companies warning every week that it is just time to play a little defense for a while. You can make money in this tape, it just won’t be by buying naked calls most likely, you’ll have probably focus more on shorter timeframes, pockets of strength like look at the XLP I mentioned in the weekend post, it was flat today. When the market is hit this hard, it is mostly tech because of how things are weighted, but there are plenty of none tech names that are doing just fine, they’re not the sexiest names to trade, but for now, they’re the names to trade.

Hope this helps put some perspective on where we stand and considering it is day 1 of the breakdown, you have some time to think about what you want to do in tomorrow’s session. If you want to add these tech names long term from here, you have my blessing, but expect choppiness in the short term. 10 years from now you will be thrilled you bought them all, but we’re traders here and our focus is the next 15 minute candle.