Wow, what a week

Wow, what a week it was in the financial markets.

Let's see how my prognostications from last week held up in terms of the Fiblines.  Recall I expected we would find support at about 188 on SPY just south of the tree line.

On Monday we opened just below the 188 level and quickly plunged down to the next lowest level at the 182.5 level and bounced hard and ended up closing for the day at about 187.5.  From there, we rallied back up to the upper white line at about 195 and got deflected back down again and closed the day Tuesday at about 187.2, just below Monday's close.

Tuesday's close was the lowest close for the week from there we shot up and closed for the week just shy of the breakdown point at about 199 on the SPY. So while we violated my expectations in terms of the maximum moves, the extremes of the price moves were very well bracketed by the Fiblines lines we knew in advance.  If the chart on the left does not convince you, nothing will.

As to how I traded it, I didn't!   Instead I went into the week already with a high cash position as a result of analysis done earlier in August and detailed in my post Time to Raise Cash.  I did put on a small offsetting short position in SPY on Friday since I think we may have run our course to the upside for the short term.  In other words, I think the rally off the bottom was just a relief rally back up to the breakdown point and we have further work to do on the downside before all this is over.

As for the rest of out favorite stocks, the FANG stocks (Facebook, Amazon, Netflix and Google) had big rallies of the lows of the week.  But experience tells me not to chase these rallies regardless of what the market does.  Instead, I'm going to stay on the sidelines for the next few 6-8 weeks since we have a very strong seasonal tendency for increased volatility (to the downside) between now and the last week of October.

So keep a high cash position, keep your powder dry and have a great week ahead.