Market Lab Report - Premarket Pulse 1/7/16

Published : January 7 2016 at 8:53 ET

Major averages gapped down, closing lower on higher volume, though they managed a rally late in the day. Oil fell more than 5% and is once again flirting with lows not seen since 2004.

Last night, the Chinese Shanghai Composite Index hit its 7% circuit-breaker about 30 minutes after it opened for trade. All trading was consequently suspended for the rest of the day making it the shortest trading day in its 25 year history. This marks the second time this year its market hit the 7% circuit breaker.

China's markets fell sharply due to China's move to further devalue its yuan currency which dropped to levels not seen since 2011.

Futures are down more than 2% at the time of this writing. Presumably most of you are in cash which is a good place to be when markets are tumbling. Those of you who took the VIX Volatility Model's signals should be up nicely for the year. The model is awaiting a new entry point where the odds are in its favor at least on a short-term basis.

Our favored short-sale targets, AAPL and TSLA, have broken down sharply, with AAPL remaining a short-sale target since it was unable to clear its 200-day moving average. This morning the stock is set to open below the $100 "Century Mark," as it continues to prove all the pundits who insisted that the stock was a "sure-thing must-own" stock that was "innocent until proven guilty," a ludicrous statement at best considering the technical deficiencies in AAPL's chart since its last failed breakout attempt in July of last year.

That said, chaos reigns for the moment with the volatility ETFs such as UVXY and XIV gapping higher and lower each day at aggravated levels due primarily to news out of China which in turn causes the price of oil to slide further since the year began. The model's fail-safes amply mitigate risk but always understand your risk tolerance levels so you can suitably position size these volatile instruments accordingly.

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