Validation That Our Bearish Trading Bias Is Correct

A surge in the Producer's Price Index caused inflation fears. The broad market declined on heavy volume despite promising earnings reporting. What about our 'counting method to determine a market bottom'? Be prepared to exit short trades at a moment's notice. Click here to get today's free options advice; have A.J. explain option trading to you in everyday language.

Hey trading team,

Alright then, we had a down day and volume ticked up. What does that tell you team? It tells me that, the institutional traders only come out when its time to sell. What do they know that we don’t? We’ll it seems they are really looking long term at interest rates.

Today the producer’s price index was released and it shot up. It shot up by a record amount. So, although we are well into this earning season, and for the most part, companies are reporting better than expected results, that inflation fear is really what is driving investors. Whenever investors are reminded of inflation, as the PPI did today, the sell bells ring. Today people who were sitting on the sidelines during the rally, came out and sold.

Does that mean our rally is over? Well, the counting method still is going. We did not drop below our level so we still have three days in which if we get an uptick in price greater than 1% and that is on heavy volume, that we will indeed believe last Thursday’s trend reversal is valid. So, we still want to have our eyes peeled. But, for now, today, we got volume validation that indeed the bearish market is the right trading bias.

My Techne January 55 Call closed down at $3.50 per option. I’m 42% into my initial investment after 14 days.

Well team, today we saw validation that the bear is still there. There is still a possibility we can get an uptick in price on heavy volume that will satisfy our counting method to determine a market bottom. But, till now, after today’s heavy volume pull back, it will be more difficult.

How does this affect us? We’ll, today our bearish trading bias was reinforced so looking for short entries would be prudent till we get a true signal of the bulls taking over. Now, because that could happen any time this week, it would actually be even smarter if we stay in our short entries, not open any new ones, and just play defensively. Be ready to take profits and run. But, I can’t stress, don’t jump to conclusions. This is where a tight stop loss or trailing stop loss alert comes in handy team.

Okay, team. I'm done.

Till tomorrow, happy market watching, trading and money making. Trading Trainer is here helping you create your dream lifestyle.

Best regards always,
A.J.

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