Thread by @theycallmetex

While everyone tries to guess what comes next, figured I'd take a little bit of time here to discuss why, as a weekly/monthly trader & investor, I'm sidelined and the concept of a "circuit break exit" that got me out last week, and why it matters to me.

I've written before but for me, generally, when $SPX closes < 60wk EMA after starting the week above both the 30 and 60wk EMAs, while 30 > 60: that's a "get out" signal.

I'll exit investments, and exit any trading book holdings that are < 30wk EMA when that happens.

Here's the chart for $SPX at current. Notice that price has yet to recapture both EMAs, and for now failed at the 30wk EMA. For me, I'd want to see both EMAs recaptured on a weekly close to consider a near-term re-entry. Otherwise I can bide my time patiently.

For me, recapture of both EMAs on the weekly chart is best thought of as a weekly analogue to the concept of a FTD in the CANSLIM model, though I don't use volume as the CANSLIM process does.

Can the market whipsaw? Sure it can. It can do whatever it wants. Would I reenter stocks this week if both EMAs are recaptured? No. After technical damage last week, any recapture of the weekly EMAs during the next 6 weeks will require "confirmation" ...

... that's a concept I use to mean I want to see 2 consecutive weekly closes over both weekly 30 and 60 EMAs within 6 weeks of the initial break. I've run a lot of studies and this process item helps minimize whipsaws for me.

After 6 weeks, a single weekly close will suffice. So until then: it's at least 2 weeks until I get back in and start buying breakouts/etc again. And that's assuming we a) close this week over both 30 & 60wk EMAs; and b) close next week the same. I'm sidelined until then.

Some history relative to these moves like last week's: let's look at $SPX again. Notice we had a circuit breaker in Dec 2019, just before the flush. The "V recovery" came later (and I rebought once we closed over both EMAs, BTW).

Prior to Dec 2019, the most recent circuit breaker came in the 2015/2016 volatility. THAT was brutal not just for me but for many traders. I exited, rebought, and was forced out again -- but stuck with my process anyway.

But note: 1st circuit breaker didn't resolve quickly.

Before 2015/2016, we had a circuit breaker post early in the 2011 bear market as well. Markets fell further and then struggled for weeks below the 60wk EMA before rocovering. I sat out most of that noise in cash, which was great.

The concept here is to avoid MAJOR downdrafts, even if I sit out the absolute bottom. So here's 2009. A CB marked the start of the huge downdraft around May 2008, & worst of the bear market followed. I was happily out of stocks.

Prior to that, look at 2000. I put an arrow to highlight the circuit breaker. Notice that it marked the top -- stocks based for few months and then began their multi-year decline soon after.

Not every circuit breaker means bear market of course. Here's mid 1999, and markets quickly recovered from the move -- but note the the CB here appeared during an existing downtrend vs appearing suddenly at a top.

That's markedly different behavior vs today.

Similarly, 1995 saw a ton of volatility and basing for a year-long period. During that period, two circuit breakers were posted -- but during an existing basing period. That's also different from today.

...and my favorite example: and the one that 1st had me look at the concept of a circuit breaker on the weekly chart. 1987.

The CB presaged the worst of the crash, and it took years to gain that momentum back.

There are plenty of other examples prior to 1987. But I'll stop there.

Am I saying bad things will happen? Nope. Markets can do anything they want. But I am saying: *if* bad things are going to happen, this is typically how they will start based on my process & view of mkts

So what I'm hoping to explain here: I have a defined process & I know WHERE and WHY I exit. Likewise, I know WHERE and WHY I buy -- I get the sense that many who head for the exits do so out of fear.

The worst part of that? No mechanical way to buy back in.

I'd love to see markets snap back! I don't short things after all. If they do snap back, I'll be back in & riding the trend resumption. That would rock.

But until then, I'm waiting. Watching. Being patient. And not worrying about what comes next, because I HAVE NO IDEA.

Hope this helps someone out there. You need not do what I do, nor am I recommending you follow my process: I'm not interested in explaining all the details, so please don't inundate me w questions.

I am interested in illustrating why a process matters so much in managing risk.