Great Trades

When the Dow broke to a new intraday low and the S&P 500 closed below our 780 stop level, our trading model moved to cash as planned, along with half our 10% oil position (20% for speculative traders) taken this morning near the low. While we took a relatively small loss on stocks, our oil position had a huge one-day move. If oil pulls back enough, we may re-add the half of our oil position we took profits on.

After 4 straight down days on the S&P 500, the market is now in an extremely short-term oversold condition. However, the market was also extremely oversold short-term in October in the middle of the seemingly endless sell-off, where the S&P 500 was down 8 straight days.

Given the downside momentum and lack of panic (as evidenced by the recent extremely low put/call ratio we pointed out last week ), the market could still go much lower, despite the short-term oversold readings. It's a dangerous environment for both longs and shorts, so our trading model remains in cash awaiting a good risk/reward entry, with tight stops limiting potential losses. There are a number of indicators pointing to a bounce starting tomorrow, so we may try another long entry if the set-up is right.

Open Positions: 5% long oil, speculative traders long another 5% oil via leveraged ETF's.