Risk came off: reading a broad risk-off day
Several trailing positions stopped out on the same day. What the cross-asset picture said about why, and what it would take to get constructive again.
Risk came off today. Several positions I was trailing stopped out together, MRVL among them. When several unrelated names stop out on the same day, the cause usually isn't the stocks. It's the market.
What the rest of the market was saying
- ARKK (a risk-appetite proxy) printed a high on October 6 with a very large bar and is sitting near it. That kind of bar near a high often shakes people out.
- High-yield corporate bonds still look fairly constructive: a rising 50-day and a near-term low in place, though still below their daily 8 EMA.
- The dollar stayed strong.
- Crude oil moved back above its 8 and 21, which may have fed the risk-off move.
- The 10-year yield fell sharply, almost 1%, and closed below its 8 EMA.
- QQQ and Nasdaq futures both closed below their daily 8 EMA.
Volume
Daily volume was well above average and the day closed red, so that was selling volume. The 5-day average of volume is turning down. The market needs some repair before it can go higher.
What I'm watching
A QQQ entry could set up if it reclaims the 8 EMA. Until the indexes repair, new single-stock risk stays small. This is the thinking that became the market regime filter a week later.
Trades mentioned
Concepts & rules in this piece
- Market regime filter (SPY & QQQ)Before buying individual stocks, check SPY and QQQ against their 8, 21, and 50-day averages. When they're below, stand down or only trade the indexes. When the 21 sits close above the 50, don't buy pullbacks.
- Moving averages: the 8, 21, 50, and 200-weekA moving average smooths price into a trend line. Four of them do most of the work in this record: the daily 8 EMA, 21 EMA, 50 SMA, and the 200-week VWMA.
- Trailing stop: the daily close below the 8 EMAAfter the first trims, the remainder rides until the stock closes a day below its 8 EMA. It's a rule that lets winners run without guessing the top.