We spent time over the weekend looking for the best opportunity for this week's trade. An adjustment was made to the MNS 113 to trade a 110 strategy variation of the portfolio in the One Million MNS.
The trading was similar to the day before Thanksgiving. There were many setups that signaled long. Today we had many trading system signals on the long side once again and only 4.5% of the trades were profitable in the One Million MNS. This is an extreme reading. The market internals started out strong and then rolled over again and were weak for the sixth day in a row.
The Russell 2000 and Nasdaq 100 surged in opposite directions at the open. The Russell was initially stronger while the Nasdaq was weaker. The S&P 500, Russell 2000, and Dow 30 stock index futures rolled over into the close, taking out their morning lows BUT the Nasdaq 100 did not take out its morning lows. This is the most "mixed" market I have seen. When divergences finally converge, the weaker market should lead. Nasdaq 100 postured higher above its morning lows, creating additional divergence.
The market internals are once again weak for the 6th day in a row this month while the VIX moved up more than 10% into the 14 handle today after closing in the 12 handle on Friday. Bitcoin also spiked lower near the close and was down -5%.
Today is the type of day where the initial indicators offered a good dip buying opportunity but there was no real bid so the market continued to move lower with very few short signals in the down draft. The Nasdaq also did not sell off to take out the morning lows either, in the midst of continuously weak market internals. At the end of the day, it should have sold off more but was instead, propped up. I anticipate a sell cycle in this market and a gap down continuation pattern for tomorrow's trade could be the pattern.
Six bearish factors to consider:
1.) The market going up at night and down during the day with a net loss on the year intra-day.
2.) Technically overbought short term
3.) Nasdaq can follow Bitcoin, which was down 5% on the day.
4.) Weak market internals six days in a row.
5.) Lack of volume confirmation for the overnight bullish pattern in number one (unless it is the Fed or US Treasury with unrecorded transactions).
6.) The contentious and divergent nature of the market can sometimes indicate a trend change.
Several of these factors (1, 4, 5, and 6) have made our short-term trading more challenging. The market postures into a dip buying modes by running away overnight with gap ups and smashing the VIX. When the market finally does dip, the dips are deeper and longer than typical low VIX stealth bull market dips. Markets that continue to move higher on euphoria or exuberance can generate challenging signals that point to divergences and trend changes underneath the market.
The One Million MNS had its worse day since January 12 and was down -3.55% while the 250K Portfolio was down -$7,100 in live trading today. The One Million MNS 110 was based on the MNS 113. We traded the MNS 113 on the day before Thanksgiving with increased position size when it was down on that day in a big wash out trade when there were many long signals that were all stopped out right before the market rallied from Thanksgiving Day through last Friday. The portfolio results for the MNS 113 have also bounced since Thanksgiving Day but mostly based on two overnight Nasdaq strategies. Staying with this portfolio at the increased position size would have generated some nice profits through last Friday. For the One Million MNS 110, the overnight Nasdaq strategies and one E-mini S&P strategy were removed from the One Million MNS 113 for today's trade. The risk to worse case drawdown was 19K (1.9%) with a worse case day of 22.2K coming into today's trade and this was a better risk setup than the One Million MNS 99 coming into today. Simply trading two units of the One Million MNS 99 would have also been -3.5% on the day.
The trading was extremely challenging today based on the mixed market internals and stock index divergences. The One Million MNS 110 was down about 25K per unit, expanding its largest losing day as well as worse case drawdown, just as we expanded our position sizing again intra-day. This puts us down -2.5% on the month. We will hold for the bounce this time since the largest winning days and bounces can come after the largest losing days. We are working on adjusting our trading cycle to capture larger winners and smaller losers instead of the other way around.
The current setup gives us the opportunity to risk 2.2% for a potential runup of 12.3% to equity peaks in the One Million MNS 113 as we flip back to the One Million MNS 113, adding the three strategies back for tomorrow's trade.
The market is due for a sell off cycle and one consideration is to focus on shorting rallies. The last time the market traded like this, the bulls used the light volume on Thanksgiving to start a stealth rally that continued all of last week. The stealth rallies capture the attention of investors, and the power of suggestion extends those stealth rallies. This time it could go the other way and form an extended down trend (since there isn't holiday volume to take advantage of to push it higher) We have many strategies that can short this market with the right setup and -500 point day on the Nasdaq could generate some nice trading system signals to re-capture the losses from today.
The Stock Index Portfolio 18 hypothetical results were down -$2,270 per E-mini and -$226.50 per Micro. The Gap Continuation 2023 did well in that portfolio taking a short trade.
The hypothetical results for the Top 50 Select Portfolio was -$4,910.00.
The hypothetical results for the 50K Portfolio was -$5,485.00.
All portfolios were challenged today by the mixed market signals that have been generated based on the emotions in the post-election cycle as well as the follow through from the Thanksgiving holiday.
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