Hope springs eternal, but I'd be cautious chasing 55 handles off yesterday's bottom and right into the 10- and 50-day simple moving averages on the SPDR S&P 500 ETF (SPY). Those averages both sit just pennies above $206, right on top of each other currently. In fact, the high today was rejected right at the 50-day SMA. Seems pretty forward to me that if you are going to buy, then you wait for a break over that level, and if you are going to short, then you stop around $206.25 or cover yourself with some $206 calls on the SPY if you fear gap risk.
While we have emerged from extreme oversold conditions on most of the major indexes, I see the secondary indicators running into resistance here as well. This leads me to conclude that if you missed the bounce yesterday or buying today's open, then you are too late. Everything is approaching resistance and that makes buying a terrible risk-reward. Understand that doesn't mean we are going lower, but it means if you were to buy this same setup 100 times, I believe you would net lose more than you would gain. Those are not odds you want going into the end of the year.
If your stocks are red today, you have to ask yourself why. I thought both natural gas and oil were due for a bounce yesterday and my preference was natural gas. That one was clearly wrong. It doesn't matter if there is a temporary blip in the weather or a margin call. It's red and the stocks around it are red even as oil and the markets rally. I was right to stay away from the small natural-gas names, but wrong on natural gas itself. This is not the time to fight a red holding on a very green day. Set it down and walk away. A loss is a loss. We all have them. To fight with them, though, makes for a loser strategy rather than just a losing trade.
You're going to hear lots of chatter about rebalancing. Ignore it. We have the end of a calendar year coming, but unless you are making moves strictly based on tax planning, you can ignore the talk about annual or semiannual or quarterly rebalancing. If that is part of your plan, then chuck it. There's a more effective strategy that I promise to cover before the end of the year. Yes, that's a tease, but the holidays are all about teasing gifts.
