It appears our little consolidation period is getting a bit more interesting after yesterday's session. The VIX jumped up to a 14 handle while crude fell below $40 for the second straight day. Crude closed below $40 for the first time since April as its fall continues. Volume was up across the board and with the day’s losses notched a day of distribution. Not the greatest follow-up to yesterday’s action. As long as you have kept your position sizes in check as well as cutting losses quickly. The next few sessions will be important for this market where we will need to see positive action. Otherwise, we may see seasonality kick into gear and the long side of the market may be difficult.

We have seen in the past this market look like it is about to sell off and it snaps right back. Post-Brexit the market looked like it was about to go into freefall. In a week’s time all the losses were erased and the market went on to make new all-time highs. Many were caught by surprise, but in the end the prevailing winds of central bank action kept just enough wind in the market’s sails to keep it moving higher. How much further do we have to fall here is anyone’s guess. It could be all done or just the beginning of something bigger. No one knows. It is why we simply execute our strategy and control what is on our power to do so. There is no need to be a hero. Keep it simple and keep moving forward.

When we approached extreme overbought conditions it was wide to take some gains off the table and reduce your position sizes. We can always reload at another add signal if we get one. Better to lock in some gains now to protect your capital. We have some headwinds now with seasonality and we must keep this in mind for the next few months. Stay nimble.

Breadth has not been great the past week or so and it has turned the McClellan Oscillator to near extreme oversold territory. Other indicators aren’t quite there and it will be interesting how the market moves forward. Stay the course and execute your trading plan. The market will do its thing regardless of what you do.

Let’s see if we can find support for this market soon.