Aug 13 – Trade plan

These past few weeks have been interesting. On the 6th, the market fell quite a bit but we were only 3% from all time highs.  There were no new headlines just the same old bearish stories (rate hikes, Puerto Rico default, Greece etc etc). I didn’t expect a full out correction because the people scared of those specific head lines had already sold long ago and we were only 3% from ATH.  Obviously, the current holders weren’t too worried about those specific issues and aren’t going to sell on most news coming out of those regions.  However, on Monday we had a new headline which wasn’t present before, the devaluing of the Yuan and the implications of a weakening China.  These types of unexpected headlines are the ones that have the power to cause selling. It takes time to quantify the effects of a devalued Yuan and brings an unknown into the market for most participants and unknowns can cause panicked selling.  I didn’t expect as strong a bounce we had yesterday and the strength of the down move usually suggests more to come.  I waited for a smallish bounce to reposition and ended the day with a negative delta upside risk! Go figure!  Anyways, this is a very whippy market and normally I’d be moving my delta limits on the upside a bit higher to accommodate for the volatility. However, this market refuses to correct. It had the opportunity yesterday and it decided to close green. Yesterdays action suggests more upside ahead barring no new headlines from China.  It was definitely a bullish move and I’ll be taking that into consideration alongside my current thought to allow more upside room before adjusting. Confusing market no doubts.

The devaluing Yuan should help the US economy as it is a net importer so maybe this was a washout opportunity to shake out the confused and fearful weak hands for a big bullish move to all time highs?