A Market Challenging Your Toughness

I reluctantly moved to full cash in my trading account on Tuesday not because I expected this type of imminent downside, but rather out of respect for the lack of upside momentum seen in even the most of attractive of long setups in growth stocks. 

While it is certainly true that imminent further downside was a distinct risk, as I noted for Members my tactic was more of the "sell first, ask questions later," variety. 

Fast-forward to this morning's session, and bears are growing more assertive. We now have the IWM back under the key $155.68 level from last week, coinciding with this morning's gap below the 50 and 200-day moving averages. Furthermore, the S&P, Dow, and Nasdaq are all flashing weakness below their respective 50-day moving averages as the VIX hovers over 20. 

The ingredients listed above may not necessarily lead to the type of deep correction we saw in the fourth quarter of 2018. But that is becoming more of a risk. And even if the selling abates later today, for example, we know the conditions ripe for clean swing long trading likely need time to reemerge. 

As a result, cash is a preferred position in the near-term, as growth stocks like TTD get pummeled (down 17% as I write this) after earnings. 

Indeed, markets like these test our mental toughness as much as anything else. Recognizing that upside momentum has waned and we must clean the slate quickly is not a particularly enjoyable part of trading--In fact, it is downright demoralizing and depressing at times. 

But we must quickly get over those natural human feelings and take care of the business at hand. This market has weakened and even with ROKU's jaw-dropping rally after earnings the great majority of growth stocks are not worth the effort to trade long until this headline-driven tape calms down and tightens back up.