Sunday, October 28, 2012

Cash Remains the Best Option This Week for Several Reasons

After spending the last week in cash other than a brief dip into HOV for a very, very small loss, I see absolutely no reason to change course entering this week for several reasons.  Technically, the distribution day count remains high and the bulls have done nothing that suggests they are ready to make a move.  Perhaps if they can get the indexes over the nine day EMA I would pay attention, but until that happens, why guess?  Yes, the market is a bit oversold but really not stretched in any meaningful way with the McClellan only at -133.  I would need to see much worse to get interested in playing a potential reflex bounce.

A more important reason for me to stay in cash this week, however, is the situation on the East Coast with "stormaggedon".  I really and truly hope that the meteorologists are blowing this whole thing out of proportion but when I see on Twitter that one of the main personalities on the Weather Channel (Jim Cantore) say that this could possibly be the biggest weather event of his lifetime, you pay attention.  Living in Pittsburgh, I hopefully won't be hit too bad by Sandy but with 2-4 inches of rain possible along with sustained 40-50 mph winds, power outages are certainly a possibility.  I personally don't feel comfortable trading if I can't see charts and don't have access to the internet.  Making sure stops are set and scanning for new stocks will be the least of my concerns if we happen to lose power, especially with a five year old and a three year old. 

In addition, although the electronic market will remain open tomorrow, I would be surprised if volume is not low tomorrow.  This isn't just because the trading floors will be closed - rather I wonder how many traders are going to be going into work along the coast to trade and how active they will actually be, especially in a weak market.  Depending on the outcome of this storm, we may see very low volume all week.  It will likely be similar to holiday trading which is typically volatile and difficult.   If this was a booming bear market, I might be interested.   Since we are smack-dab in the middle of a correction, sitting out is just fine with me.  Just because you will not be physically affected by the storm doesn't mean your trading might not be affected. 

Best of luck to all of those along the coast dealing with this storm and its possible outcomes.  Although I am not looking forward to the massive rains and heavy winds, I feel lucky to not be in New York, Boston, or any of the other coastal cities that will feel the brunt of the storm.  Stay safe. 

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