My Paramount Goal: Protect Capital Amid Possible Shift in Market Character

 | Jun 15, 2017 | 10:42 AM EDT
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Stock quotes in this article:

spxu

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IWM

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QQQ

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aaoi

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bbry

My approach to market timing is to be reactive rather than anticipatory. I avoid the glory of trying to time the exact moment the market has made a top. My goal is to react when the character of the market shifts and to do my best to protect capital.

This morning I'm doing my best to protect capital. I've taken a couple stops and have added to index shorts in the form of UltraPro Short S&P 500 (SPXU) and am prepared to press that further should downside momentum grow.

I have no idea if this is a major market top, but I'm positioning for further downside. This is the point where protection of capital is paramount. In order to outperform you have to avoid the big losses that occur when selling accelerates.

The thing that is most notable so far today is that the routine dip buying that occurred at the open was stuffed pretty quickly. The Russell 2000 ETF (IWM) is still holding up a bit better than the other indices because its 20% financials, but the weakness in the Nasdaq 100 (QQQ) , which is mostly big-cap technology, is of great concern. Momentum stocks are being hit hard and are demonstrating that momentum works in both directions.

I'm still looking to buy some names such as Applied Optoelectronics (AAOI) and Blackberry (BBRY) on weakness, but I'm not doing anything right now.

We'll see if the bounce buyers try again, but many traders are looking to sell into bounces rather than chase them right now.

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