Good morning and Happy Friday!
After four days of losses, futures are pointing to a higher open but consolidating at lower levels. At this point or above, is when we typically see the dip buyers jump in and save the day. What is now been happening is that the short term rallies are being sold. After four days of losses, it would be normal to get a relief rally and close higher. We will have to see. Sentiment has clearly changed and we could easily see more downside ahead. After all, in a normal market, a 5% to 10% correction is typical. But 10% can be very painful for many that have not gone through that before. 10% would mean a total drop of 455 points on the S&P 500, which would take it to 4091. Take a look at that on the daily chart below. A 10% drop would take us back to May levels.
I am not at all saying that will happen and it is probably not likely, but are you ready for that contingency? Do you know what you would do if that happened? Do you have a list of stocks that you would buy and be ready to buy or would you be selling at the bottom because you got margin calls? In my past, I was the guy getting the margin call. What is your plan?
Talk soon,
Al Losada
Founder | SimpleOptionStrategies.com
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