I’ve had a few requests from premium members to provide my thoughts on how to play this market right now.  I thought I’d pass along with what I shared with them here..

I’ve had a few questions this morning about how best to tackle today’s sell off and wanted to give you my opinion on how best to proceed and how I’m going to proceed.  First of all keep in mind that it wasn’t going to take much to send this market into a tail spin.  Many traders most likely had tight stops in anticipating a correction.  When all those stops get triggered at once it leads to a bit of a panic which leads to more selling, more stops triggered.. you get the idea.  Yes, its important to protect your capital and unload your weakest positions.  I personally don’t use stops because I’m able to watch the market closely during the day and don’t like getting stopped out based on price alone.  I’d rather monitor both price and volume as well as overall market conditions when determining if I’m going to sell or not.  If you are using stops, which many of you are that’s ok.  You should be if you can’t pay attention to your stocks. 

It’s easy to get wrapped up in the fear and panic on an open like we had today but it’s so important to sit tight and wait for the dust to settle then make a rational decision.  The best time to do this is in the last few hours of trading which is when the institutions make their moves and the low liquidity high fliers aren’t swinging a few bucks in minutes.  Fight the fear and make rational decisions.

You may be tempted to look for some of those high flyers that have sold off today.  My recommendation is take your losses today, take your aspirin and sit tight for a few days at the very least.  What this kind of selling does is create hesitancy.  Hesitancy to the kind of speculation buying we’ve seen over the past few weeks (including in the Model Portfolio).  At the very least, this market doesn’t go anywhere over the next several weeks.  At the worst, we get a major meltdown.  I think we get something in between. 

As always, the most important part of today’s trading will occur in the last hour.  Can the bulls make a stand and force a close above key support of the 50 day moving average?  If so, we probably end up in more of a sideways pattern over the next few weeks.  If this market closes below those support levels we’re headed much lower in the coming weeks. 

I’ve been hedging my long positions with 10% of the portfolio in QID and will look to add more to this position soon.  Stay tuned and be careful out there.