How to use Rallies to Lower Risk

How to use Rallies to Lower Risk

(3/8/22) Markets sold off on Monday, breaking through support all the way back to October's levels.

Markets are not yet on a sell-signal, and not really all that over-sold--meaning, there's still some downside risk with which to be reckoned.

We will likely re-test the intra-day lows established when Russia invaded Ukraine.

Sentiment remains negative--the CNN Fear & Greed gauge is in the "extreme fear" category.

This would suggest we could get a quick rally back up to the 50-DMA, but the trends are still pointing lower--putting pressure on prices at lower levels.

So as markets rally, there's not a lot of headroom in which to play.

Use these rallies to reduce risk.

Higher oil prices and higher energy costs will weigh on outlooks for the rest of the year, and will push us towards a recessionary economy by the end of the year.

The surge in oil prices over the past few weeks, thank you, Vladimir Putin, has placed them more than three standard deviations above the moving average.

The spread in contracts seen thru the lens of backwardation is the largest in history, suggesting we are at or near the peak in oil prices.

Will high prices cure high prices, or will the increase in energy costs trigger a full-fledged recession?

There will be a rapid reversal in oil prices at some point.

If you're long oil & gas, watch for that reversal--the tell-tale sign to take profits and remove yourself from that trade.

It's easy to do the buying, but more difficult to do the selling--don't forget to sell and take profits!