In this type of environment, our focus has been on capital preservation as opposed to capital appreciation.

We've gotten a lot of questions about Metals during this time, so this post will review why we've been out and what would get us involved again.

There are a lot people openly talking about the potential for the stock market to close while this coronavirus pandemic plays out.

This is a valid concern.

Naturally, the question becomes: "What happens to any open options positions I have on if expiration happens during a market closure?"

I'll start by saying: this is no ordinary week. But you knew that.

If you are sitting on the sidelines, waiting for all this craziness to subside, that is not a bad idea at all. There is no reason to put our money at risk if we can't get a handle on our own emotions during this highly uncertain time.

That said, for those who are willing to wade into these choppy waters with me -- these insane premiums offer us the ability to sell premium FAR away from current prices. I'll share with you my simple game plan for this week.

Every month I host a Conference Call for members of All Star Charts Pro. From the feedback we get from our readers all over the world, this one feature of our Membership is a fan favorite.

A lot has happened in the past month. You hear things about interest rates getting slashed to zero, viruses impacting stocks all over the world and many things that none of us could have predicted a month ago. However, Technical Analysis gave us the ability to get out of the way and avoid this entire mess. Not only did we want to buy bonds, but we simultaneously wanted to sell stocks!

Today I want to share with you the video of last month's Live Conference Call. I've unlocked it so anyone can watch it, not just Premium Members. I've gotten a lot of requests to do this, even from paid subscribers, because opening it up serves as a great educational resource for the future. We can all learn from this, myself included.

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These are the types of markets that are a statisticians dream come true. They get to run all sorts of scans and tests to see how long it's been since volatility did this or the rate of change in the S&P500 did that. To be honest, it's all a bunch of bullshit. The market doesn't care about your stats.

I'm not going to go over all of them because I don't find them very helpful. In fact, I find them incredibly deceiving and, even worse, distracting. I felt that way on the way up with their stupid, "S&P500 hasn't moved 1% in a single day in x amount of days....". Who gives a damn?

Today is no different.

Let's talk about what actually matters.

2750 in the S&P500 was support in the first half of 2019. We closed the week still below that. We might have a slight bullish momentum divergence, but if S&Ps are below 2750, we put this index in the "No-man's land" category:

*No-man's land meaning: Not a buy and not a sell.

Risk management has to be our number one focus right now. This is no time to be lazy, hoping, or praying.

Yes, if you're willing to wade in carefully, there can be some great opportunities for premium selling. But even then, we still have to be extra vigilant in protecting our capital.

I bring this up because I received an email from someone recently who didn't follow his rules, and now finds himself severely underwater and wondering what to do next. We've all been there. Something unexpected happens, and now we're like a deer in the headlights too frozen with indecision and unwilling to make any move whatsoever because we're afraid we are going to compound the situation for the worse. It sucks.

Here's the situation my friend finds himself in. Let's learn from this.

We got a lower low in equities, followed by continued weakness rather than stabilization. Heavy cash positions and a defensive posture remains best in this historically volatile environment.

Given how quickly things are moving, there are three charts on our screen that will help identify when a shift in the market is occuring.

Mike Hurley has been an inspiration to me for many years. When it comes to market breadth, this is the guy. He'll tell you he learned it from his predecessors and how he's standing on the shoulders of giants and all those things he discusses in this episode, but for me personally, he's been a great influence for sure. Many of you know how seriously I take my breadth work and how valuable it has been to so many of us for many years. It's people like Mike and others who have helped my process evolve to where it is today.

This was a really fun podcast for me because the topic of market breadth and internals is so near and dear to my heart. In this podcast episode, Mike and I talk about history and how different turning points in the stock market have been led by breadth deterioration (at tops) and breadth improvement (at bottoms). We also discuss 2020 so far and how breadth was deteriorating well before the S&P500 and Dow hit their ultimate highs. Once again, it was breadth that got us out of the way of trouble this...

From the desk of Steve Strazza @Sstrazza

Thank you to everyone who responded to this week’s Mystery Chart.

We had a few buyers but most of you were selling at this logical level of interest or exercising patience to see how prices react here. A few responses also pointed out that this likely isn't the best time to enter on the long side but are anticipating an eventual breakout and would be buyers if and when we get it.

This is the same camp we'd fall into and we provide details why in the original Mystery Chart post. With that as our backdrop, let's look at the chart.

The market goes through periods of volatility. We've seen it before and we'll see it again. For me, it's all about learning from this experience and coming out of it a better and wiser investor. Notice how you're behaving and acting during this period.

I know the way I'm feeling during this volatility is much different than my emotions and behavior in 2008 and 2011 and 2015 and 2018. I learned. And I will learn from this one as well to prepare me better for the next go around. I encourage you to do the same.

Today I want to talk about how, "Bottom fishing can be hazardous to your wealth". The goal is not to try and catch a falling knife (see here why), but to buy on the way back up.

It's a lie that you have to buy low and sell high. I've found it much more helpful to buy high and sell higher. I'd rather pay more knowing that the trend is up, than trying to be a hero and be the first one in. Notice how we didn't get bearish stocks until late January, after they had already been rolling...

From the desk of Steve Strazza @Sstrazza

We look at a variety of intermarket ratios that span just about every asset class in order to get a read on interest rates. Here is one that we don't discuss too often, but its relationship with the 10-Year Yield is obvious from looking at the chart below.

The S&P High Beta/S&P Low Volatility (SPHB/SPLV) ratio made significant lows around the same time and place as the 10-Year has several times over the past decade.