Weakening Wednesday – Global Markets Retreat as Tensions Ratchet Higher

Thank goodness housing is still dead or the Dollar would be back over 100!

I told you I like CASH!!!

In fact, I told you on Friday morning in our Report titled: "TGIF – Silly, Low-Volume, Pumped-Up Week Finally Ends", saying:

"Volume has been anemic this week too with, 55M SPY shares trading on Monday, 67M shares on Tuesday, 59M shares on Weds and 68M shares yesterday vs an average volume of 101M shares so about 35% below "normal" volume, which is already close to half of last year's volume. Why is volume drying up like this? Because stocks are more expensive so the same money buys less and less stock and, because the economy isn't really growing – there is no more money to pay for the stocks – just a lot of idiots SPECULATING that there will be money to pay these ridiculous prices one day, so it's not important to actually earn any money because the greater fool theory will fix everything.
"The greatest fools, of course, are the last people to buy at the top – we call them bag-holders and I have been saying all week that this test of our Strong Bounce Lines is a good time to dump your stocks on the bagholders that are coming in and get back to CASH!!!. Again, I can only tell you what is likely to happen and how to make money trading it – the rest is up to you!"

So far this week, the markets are down and the Dollar is up 1.5% and still climbing this morning at 93.50, that's putting pressure on the indexes and commodities which makes people panic out of those and they then demand more CASH!!!, which drives up the price of Dollars (as they get scarce) and the cycle continues. People are also trying to trade in their dying TBills for cash – so even more demand for cash. Thank goodness housing is still dead or the Dollar would be back over 100!

We're thrilled to have a nice little pullback and we even bought a couple of stocks yesterday but, on the whole, we're even more thrilled to be mainly in CASH!!! during this period of market uncertainty. You can read my rant about cashing out from last Wednesday and, if you didn't, it's OK as we're back where we started on that day and today we're looking to re-test the weak bounce line on the S&P at 2,684.

Yesterday, however, we focused on the Nasdaq shorts at the 7,000 line and today the /NQFutures are down at 6,889 so we set a stop over 6,900 to lock in a $2,000 per contract gain but, hopefully, we will collect the full $10,000 per contract we were hoping for as the Nasdaq falls to our 6,500 target.

None of this is TA, by the way, we're simply using our 5% Rule™, which uses good, old-fashioned MATH to let us know what ranges we should be playing in (see yesterday's Report for a run-down of the Big 5 Indexes). When we know our ranges, we know when to hold them and we know when to fold them – and THAT is the secret to successful investing. This morning, in our Live Member Chat Room, we decided to short the Russell (/RTX) Futures at 1,602.50, as that is the lagging index to the downside this morning.

Volume on the S&P was over 50% higher than it was on Monday but I'm expecting a higher-volume move down before we begin to seriously look for a bounce since the entire "rally" last week was nothing but low-volume BS, mostly reeling the suckers in to hold the bags while headline stocks like Apple (AAPL) propped up the market. You can see it in the very lame volume on SPY:

Here's just a few of the things that are going wrong in the World this morning:

Seriously, that's just this morning! You may think I'm cherry-picking bad news but go look for yourself – I'll wait… See, not good, right? You can buy the F'ing dip if you want and, as we noted, we are still doing some bargain-shopping but nothing we aren't planning to double down on if they get 20% cheaper – which is what we expect if we have a proper market correction.

For now, we're just waiting to see if the 1,600 line holds on the Russell which, so far, is being kept aloft by the strong Dollar (Russell Small Caps tend to do 80% of their business in the US, so a strong Dollar is good for them) as well as 2,700 on the S&P (/ES), 6,900 on the Nasdaq (/NQ) and 25,650 on the Dow (/YM). If 3 of those 4 go over or under those lines you can go long or short the lagging index with tight stops.

Macy's (M) knocked it out of the park on earnings and are up 10% pre-market and that might give the retail sector a nice lift that keeps us green in the morning. Otherwise, there's not much data today so we'll wait and see which way things go. We have a Live Trading Webinar this afternoon at 1pm, EST and we'll begin reviewing our 5 Member Portfolios as we head into option expiration day on Friday.

Be careful out there!

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