You should have been stopped out of Direxion Daily Financial Bear 3x (FAZ) yesterday when it hit my recommended protective sell-stop at $18.89.
That’s unfortunate, but that is what stops are for, to limit the risk. Financial stocks sank initially after reporting earnings as I expected they would, but yesterday Janet Yellen breathed new life into the possibility of a March interest rate hike. Financials rallied on the news in a knee-jerk reaction to higher interest rates which help fatten profit margins for the banks.
I believe the markets are dead-wrong about interest rates. The global economy is simply too weak to tolerate 3-4 rate hikes this year. And when push comes to shove, Yellen and the rest of her Fed lackeys will blink, just like they always do.
But for now, it makes no sense to argue with the markets. They remain over extended and overbought – especially the financial sector – based on all the indicators I follow. But they can get even more overbought before it finally cracks.
The Dow is running into resistance around the 20,500 level. That’s when we’ll see what this rally is made of and may get another shot at shorting financials and other overbought sectors.
In the meantime, continue to hold your position in DXD and all other positions for that matter. More market updates coming soon.
Stay tuned …
Larry
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