I mentioned last night that last week I was looking for a pullback (slight) and then a bounce; I'm using the term loosely because at this stage of the market and volatility, I wouldn't want a term like "Bounce" to imply a small 1-day or less, almost negligible move.
Market Pullback since last week (SPY)
If we consider the "Big Picture" which I'm using very literally and not implying that it is the ultimate move, but off in some undefined future, then the reality is that any bounce does become much more negligible next to the bigger picture. When the bigger picture is building or already clear, but off in some undefined time period, these "bounces" or rallies or whatever you want to call them, have more importance because they are a way of creating income that can offset drawdown and as we have been using them with leverage, they can not only hedge strong core shorts, but they can add income as well as allowing us to enter strong shorts at the most favorable area (which doesn't always mean the best market timing - right now our core shorts in DE and IBM are excellent examples as having had very favorable entries several months back or more, but are not timed well to an overall market decline.)
The point being, as I have said since last week, "I wouldn't blame anyone who would rather not play a bounce (as it has much more risk now), but rather wait for a bounce to enter core shorts on some price strength".
In essence the difference now being the utility of bounces previously was to give us good entries and short exposure as this market is one of, if not the most extreme markets I have seen in terms of distribution. We already know several private equity firms have been selling every long asset they have for 15 months now, that implies a significant move to the downside that goes far beyond the media's -20% mark. Also in the past bounces allowed hedging of core shorts as well as extra income as the drawdown on an equity (non-leveraged position) is no where near the gain of a call or leveraged ETF.
Now however, in my view, a bounce is most valuable as a means to effecting an end, which is to use price strength to sell short in to, this is what I believe we have been seeing in the afternoon on market recoveries from morning intraday lows.
I'll get some charts of XLF up ASAP, but it looks like a good, overall sector to play a bounce and I believe that we have gone through the short pullback and are now at the area where a bounce is kind of now or never as some really nice shorts are already falling apart significantly.
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