The Most Important Chart In Your Tool Box

The most widely accepted and general definition of a bull market is if it's trading above the 10-month moving average (200-day ma).  If below then it is considered a bear market.  Currently, the SP500 has closed two consecutive months below its 10-month moving average, and unless it can gain +5% in the next five trading days, this will be the third monthly close below it.  The more monthly closes below the 10-month moving average, the more likely that the SP500 will retest its 2000-2008 breakout at around 1550 (green line) that would put the SP500 down 24% for the year.  The market is about probabilities, not predictions; I believe there is a 40% chance we might get down to the 1550 level.

Using the 10-month moving average as a timing tool has been very effective and profitable over the years as you can see in the charts below.  Not only has it saved many an enormous amount of capital, but it has also kept many mentally sane by keeping them out brutal bear markets like 2008. Protecting your mental capital is key, it will allow you to participate fully in the next bull phase without any baggage.

Charts by Meb Faber

When the SP500 is below its 10-month (200-day) moving average it makes sense to keep a portion of your portfolio in cash until we close back above it on a monthly basis.  For those who have an interest in perhaps taking advantage of big decline might consider owning SH;

ProShares Short S&P500 seeks daily investment results, before fees and expenses, that correspond to the inverse (-1x) of the daily performance of the S&P 500^®.

If you look at the SH weekly chart, you can easily see that it was in a downtrend for a very long time, and now it has found a floor that looks like a launching pad.  Basically, SH is the opposite of the SPY.  If you turn the SPY chart upside down, you will see the same thing. Turning the chart upside down gives you a better view/idea of the potential move it can have.

Zooming in the SH chart, one can stay constructive and perhaps consider it as an investment as long as the SP500 stays below its 10-month (200-day) moving average.  I would not consider going long SH after the market has had multiple down days; I would rather consider going long SH after the SP500 has ripped higher.

The market tends to be a little more volatile on the way up and on the way down when it is trading below its 200-day moving average. Over the last 30 days, the SP500 gained +6%, lost +6%, and gained +6%.  In this environment, you don't want to chase moves to the upside nor downside.

Source; LPL +Ryan Detrick 

Bottom line; as long as we are below the 200-day moving average tactical investing makes more sense than passive.

Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at fzorrilla@zorcapital.com or 646-480-7463.

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A Plethora Of Short Set-Ups

The SP500 has had a decent bounce over the last four days, +6% to be exact.  It was only last week when there was panic and despair in the air; you were able to see it in the parabolic move that the Gold and the Gold miners had.  My phone didn't stop ringing from people who realized that when the tide went out, they were swimming naked and now wanted a plan.  If you believe that we are in for a rough year, then the market has given you the opportunity to sell at better prices.

As we approach some resistance on the SP500, my scans are spitting out a whole bunch of short set-ups.  For me, it is going to be very interesting how these short set-ups react over the next couple of days.  If they start to trade sideways instead of going down immediately that could be a sign that better times are ahead.

Short set-ups: ACN, NKE, EFX, HBI, CCL, ADBE, LVNTA, W, AMZN, CRM, MAA, PSA, STZ, EXR, SBUX, SPG, ULTA.

Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at fzorrilla@zorcapital.com or 646-480-7463.

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History Of Crashes

Read This Before You Short

Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at fzorrilla@zorcapital.com or 646-480-7463.

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History Of Crashes

"The higher the VIX, the higher the clicks"--Phil Pearlman.  Nowadays you will never get more hits on a blog post than when you write one about crashes.  Fear sells; if you can get a once in a lifetime crash call correct you will be immortalized for years regardless if you get everything wrong afterward. Remember, Elaine Garzarelli, Marc Faber, Nouriel Roubini, Meridith Whitney, Hussman, Peter Schiff, etc.

Here are a few things to remember;

1. The market goes up and down not up or down.
2. Corrections and outright bear markets are painful.
3. Big money is made after corrections, the bigger the better, live to fight another day but embrace corrections.
4. Indices have a tendency to come back, stocks are a different story, most don't make it.  “The Russell 3000 index measures the performance of the largest 3000 U.S. companies, 98% of the investable U.S. equity market.  40% of the stocks had a negative return over their lifetime, 20% of stocks lost nearly all of their value, 10% of stocks recorded huge wins over 500%.  80% of the gains are a function of 20% of the stocks.
5. When you look at the charts below you can focus on how scary the sell-offs were, or you can look to the right and focus on what happened afterward-THAT'S WHERE THE BIG MONEY IS MADE.
6. The biggest rallies happen during bear markets, be very careful shorting in the hole.
7. The first low after a rapid sell-off is usually not the last low.
8. A retest of the first low happen often; the retest normally forms a new low along with some positive divergences, i.e., less 52-week lows, etc...
9. Every sell-off, 1987, 1990, 1994, 2001, 2007, all felt like the end of the world.  The media made it seem that way, today Twitter will make it feel like an apocalypse and the bearish arguments will always make more sense.
10. Protect your capital and protect your mental capital.  "Stay the course", "In it for the long-term", etc., is sound advice when we are in  bull markets and for my 4-year old son that has his whole life ahead of him. Cash is a position. TACTICAL OVER PASSIVE.

Below are annotated charts of the SP500 during corrective/bear market periods. 

1987

 1990

 1994

 1997

 1998

 2001

 2002

2008

 2010

Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at fzorrilla@zorcapital.com or 646-480-7463.

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Read This Before You Short

So here you are, champing at the bit to short because your favorite blogger who has been bearish since 2011 has been on fire this year.  You see the DOW down 300 points, and you are completely convinced that this 2008 all over again.  Well, shorting is just not the opposite of going long, the dynamics are entirely different, and the last thing you want to do is short in the hole or short an oversold market (presently I don't think we are oversold).

Here is one significant fact about shorting in bear markets:

The biggest rallies happen in corrective/bear markets, exactly when bears should be making a killing. The minute you get overconfident that this is the end of the world you get a mere 3-5 days dead cat bounce that wipes you out. If we are truly in a bear market that bounce will fade and lead to lower prices, be patient, short the rips.

Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at fzorrilla@zorcapital.com or 646-480-7463.

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Buyers and Sellers Have Found Equilibrium

In the last two weeks, the sellers and buyers have found an equilibrium, neither has been able to do anything without any conviction.  Dips to $187 on the SPY are being bought, and rallies to $192 are being sold.  Currently, the IWM is holding up slightly better than the Nasdaq Composite and the Nasdaq 100.

$FB $GOOGL $MSFT $AMZN are some of the Nasdaq 100 names of interest for me if they can turn green on the day.  $CREE on any pullback that does not break yesterday's low is also a stock of interest,  $SXCP, $WING $GLBL round out the list if and only IF they can get through yesterday's high.

Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at fzorrilla@zorcapital.com or 646-480-7463.

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The Range Has Been Set

It was a very volatile session yesterday.  The standout were the miners $GDX, which this morning are gapping up to a significant resistance level--2008 lows and a declining 200-day moving average.

For the short term speculator, the $SPY has given you a range to sell the rips and buy the dip, $187-$192.

CREE, CTRP, WTW, WING, GLBL, VG, CRM, TRIP, XBI, SXCP, DUST, are stocks of interest on the long side today.

Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at fzorrilla@zorcapital.com or 646-480-7463.

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Less Is Better

There is no doubt in my mind that in the current market environment less is better for a majority of the participants.  However, I also believe that you have to stay engaged, go through the motions so you can stay in tuned with the market.

The biotechs have been under pressure all year, but stocks/ETF's go up and down not up or down.  It seems that $XBI has found support at the $48.50-$48.70 level--if you drill down the chart to an intraday level you might be able to find a trade on the long side with a close stop below the $48.5 level.

CREE, SWNC, SXCP, TTS, KSS, NTES are some of the stocks of interest to me on the long side if and only if they go through yesterday's high.  I'm speculating in a very short time frame.

Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at fzorrilla@zorcapital.com or 646-480-7463.

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Checking In On The Robo Advisors

The market is off to a rough start this year, many investors have been concerned about the market for the last few years as it was making new highs every other month, you can only imagine how sour sentiment is now that the market is making multi-month lows.

Today we are checking in on the Robo Advisors, Betterment and Wealthfront.  Passive investing has been the talk of the town for the last few years, the amount of money moving out of tactical/active management into passive investing has been tremendous.  The biggest road block investors in the passive strategies will encounter is sticking to the game plan.  You see, in a bull-market all your investing sins are forgiven, the less you pay attention the better you are off, the less you know the more beneficial it is to your portfolio. The last thing you want to do in a bull market is micro manage a long-term portfolio.  However, in a bear market, you will be susceptible to the many behavioral flaws we all have.  If your plan with your nest egg is to "set it and forget it" and/or "sit tight and ride it out", your behavioral flaws might fail you exactly at the wrong time.

With the market trading below its important 200-day moving average, I'm of the opinion that this is not the time to turn a blind eye to your investments. Betterment's and Wealthfront's 70/30 portfolio mix is down to the tune of -5% so far this year.  A simple proven timing strategy in these portfolios would have you 80% in cash for the time being protection you from further downside.

Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at fzorrilla@zorcapital.com or 646-480-7463.

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A Few Long Ideas And A Couple Of Shorts

As long as the indices stay above their 30-minute moving averages, speculators in the 0-5 day time frame should probably focus on long ideas unless of course they are shorting an extended move higher.

$DFRG, $HCKT $VG $ANF are the stocks on my long watch-list.  My only interest in getting long these stocks is if and only if they go through the previous day high plus .10 cents.  These stocks are have contracted over the last few days and move above the contraction should lead to a period of expansion.

$NOC, $SBNY are two stocks to consider on the short side.

Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at fzorrilla@zorcapital.com or 646-480-7463.

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