Thursday, August 4, 2011

Dow sheds over 500 points. Recession part 2?

Dow dropped over 500 points today! Global market panic for the long run? Maybe. Although it's nothing close from what we have seen in 2008, it is pretty scary if you ask me. I've said since the beginning of this blog that I believe that regarding to the VIX anything trading under 20 was a steal... was I right? Absolutely. I saw that part coming from a mile away. I found it quite interesting that back in the day (when the Dow was trading sideways in the 12k territory) with all the turmoil that was going on in the world, markets were relatively quite. That has changed. With the Dow Jones shedding over 500 points it is time to rethink our usual trading strategies and focus not just on stocks anymore (since they tend to be to volatile under these market conditions) In these times I recommend ETFs, especially the spiders that track the DOW, NASDAQ and the S&P as a whole. In these volatile times, risk is subsequently higher, so use extra caution entering any trades. For me, I don't trade stocks under these circumstances but the ETFs DIA, SPY or QQQQ. And to make things interesting we'll throw in the FXE; the spider that tracks the US dollar performance against the Euro (the EUR/USD for Forex traders). Usually volatility of this magnitude lasts just for a few days, so in that case I'm taking out options with the ETFs mentioned above as their underlying security. To take advantage of this wave, the shorter the expiration, the better.. The cost may be a little higher but it's worth it. My analysis lean to a correction soon. I'm quite optimistic about the future, therefore I take bullish positions. For the FXE ; 1.40 The Diamond QQQQ and SPY all bullish. Except for the VXX which will be sinking as soon as 'panic mode' has settled.

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