As the markets made their declines yesterday it was easy to think here we go again, we make new highs only for them to be taken out by severe retracements almost immediately. That certainly has been a pattern throughout 2014 even while the markets made not just new highs but record highs. That also makes it very challenging for breakout traders.
Hence why for a complete trading approach you do need to be able to trade the reversals, which we have consistently nailed time and time again.
My view of the current down-draft is that oil is playing a part, as is the imminent earnings season and the fact that it’s the time of year to pay taxes, meaning that with the overall uncertainty now is a good time to liquidate some stocks to pay the bills. Last year it happened in late January. This year it’s happening now.
Notwithstanding the two jokers in the pack (earnings and oil) at this stage the best way forward is to sit this out until we can see another obvious reversal at play.