The Week Ahead…

As a reminder the US stock market will be closed on Monday of next week (1 September 2014) as it is a US banking holiday.

Typically ahead of a US banking holiday the markets have a tendency of rallying however the FAS has a separation of more than 10% from their 200dma.

On the daily chart with the 200dma you can see we have had several times where the separation of more than 10% has created a market reversal however the degree of the reversal is the issue.

In some instances the fade is small however in July the reversal was almost 12%. It was actually thought that this was the potential start to the market shift only to catch many bears by surprise by rallying to yet even higher prices.

So it will be interesting to see what transpires this coming week.

In the event the market does not rally into the holiday there is also the likelihood that it may rally after the holiday. That is why when trading directionally, it is best to be out or to be hedged.

With the VXO back at 10% I have begun to keep my contracts smaller than usual as I experienced minor whipsaw in recent two weeks.

The key is the market has to move.

I do believe that keeping it small will enable me to ride out these whipsaws so that when the market gets its rhythm back I can start adding additional contracts.

As a reminder September is a month for an FOMC event.