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I attended a local Market Technicians Association [MTA] meeting on November 4, so catching Jay's "What's Your Plan" article in his Kaeppel's Corner column on the same day was perfect. There is quite a bit of discussion about where we head from here, and while clearly I complete my share of analysis, the bottom line is that no one knows where the market goes from here.

As a technician, I believe that prices reflect the available information from a variety of market participants. Since new information is available minute by minute, there is constant feedback in price. Statisticians, market historians, top quants, fundamental analysts, technicians" all offer opinions. I can't recall any of them ever claiming to know what the next market day will bring.

One huge problem with all of this is that you still need to have a plan; one that is thought through rationally and suits your style. Regardless, with all of that effort, it's hard to turn on a dime when new information suggests a change is emerging. The remainder of this article provides some things I do to help me with the challenge.

What Is?

I first look at "what is" in the market. Staying grounded in the reality of the situation using objective tools is key. Since I tend to trade shorter term, but also hedge longer term holdings, I'm interested in all three trends: short-term, intermediate term and long-term. One straightforward, objective way to assess these trends is to note the direction of the 20-day, 50-day and 200-day exponential moving average [EMA], respectively. A sideways 50-day EMA says to me the intermediate trend is sideways.

The timeframe you measure or the specific tool you use to measure it is a personal one-just keep it objective. When you feel least clear, keep your charts (or other tools) as pared down as possible to start. Don't forget to look at the bigger picture by starting your assessment with the longest interval applicable, for me it's a monthly chart. Equity option traders may also want to add a similar assessment for the CBOE Volatility Index (VIX).

Once you feel clear on the current market trends that apply to your trading, consider what it means for your holdings. Assuming these trends remain intact, consider whether your holdings are consistent with conditions. If not, does your plan include a specific contrarian approach that is in line with your current allocations? By breaking down your assessment in this manner, you may be able to identify a specific part of your portfolio that is causing you the most concern. Addressing a problem area head on may allow you to better manage each day's or week's market turns more readily.

What If?

When you are firmly grounded in current market conditions (trend, volatility, pending announcement"), you can start to think about what may be next. Once again, try to start with objective tools and consider what different scenarios can play out. Identify in advance the implications of different movements these indicators take. For instance, an oscillator holding support at a zero line would suggest that trend is still intact.

In the event your standard tools are not providing additional insight, consider analyzing some back-up tools. I don't trade using Elliot Wave Analysis [EWA], but I will take a look at weekly wave counts as part of a periodic analysis. I'll view Fibonacci retracements if my regression channels or moving averages don't seem to be holding up in the current market. I'm not trying to find a tool that fits my opinion, I'm just trying to get more clear on whether conditions may be changing.

Assess Different Portions of the Portfolio Differently

I find it hard to manage my short-term trades without thinking about the implications for longer-term holdings. When a "what if" brings me to a price objective that could hurt the longer term holding, it's challenging to not react. Fortunately (?) I've made that mistake a few times, so now I circle myself back to "what is". In particular, I force myself to look at the longer term picture again.

If I'm still concerned about investments, I look to hedge my positions. It's not until the "what is" begins to lay itself out that I can take action. The main thing is that I have a specific approach and a plan. If you're struggling with these markets, consider the extent to which you have a roadmap to manage the uncertainty. If not, taking some time to put these in place when the markets are closed may be your best plan of action.

Clare White, CMT
Contributing Writer and Options Strategist
Optionetics.com ~ Your Options Education Site

Questions for Clare? Please visit the discussion board on the homepage of Optionetics.com.

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