Major averages got slammed on higher, above average volume yesterday with the Dow down nearly 500 points and major averages in general down around 3%. As we have said, expect elevated levels of volatility. The volatility model went to a sell signal shortly after the open on August 31. Thus when volatility instruments were up sharply yesterday such as VIXY +14.2% and TVIX +31.19%, there is nothing wrong with taking some profits. For now, the model remains on a sell signal, but this can change on a dime.
Also, as we have said, be sure you understand the inherent risks in whichever volatility instrument(s) you trade. This will then allow you to intelligently position size, place sell stops if you feel the need, and possibly pyramid if such actions do not exceed your risk tolerance levels.
Futures are up just over 1% at the time of this writing as markets attempt to bounce after yesterday's thrashing. That said, concerns about the slowdown in China are ever-present, though one analyst wrote "The saving grace could be the two-day Chinese holiday that begins on Thursday, which in theory should provide a moment of respite for volatility-weary investors." On the other hand, investors may want to exit positions ahead of the long weekend due to lingering uncertainties in the global economy, and such actions may push markets lower.
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