I sometimes feel I over think on a trade and can confirm after seeing the results. Second guessing myself has been one of the most difficult challenges I have to deal with. Whether it is holding losers too long do to false convictions or holding winners too short do to fear of turning it into a lose the end results are just not good trading habits.
The key success to trading I have come to realize is every trade I must find an edge before I commit. The edge can be all kinds of indicators or trade setup that I remember. The better the edge when multiple elements align.
Commitment of Traders (COT) is one indicator I look at to see who is position in equities. A very clear bias has formed in recent weeks when it came to the small caps or Russell 2000.
Commercials are net short significant at current prices versus large specs are very net long. The last time the COT had this type separation was right before the February 2020 market crash. Now it is difficult to determine a top and I do not intend to go short immediately but if I had to I am focus mostly on IWM or buying TZA.
Something I notice over the course of the week is that SPY has been very resilient on any major pullback. I give this credit to NDX and IWM working in divergence where either one is leading the other yet SPY holds both. As both balance each other out the SPY pretty much holds its prices, but when NDX and IWM rise simultaneously it will result in higher SPY.
VIX expiration
If I am focused on specific date to go short it will be closer to middle of the week to end. Main reason for this outlook is that the VIX futures for month of November expires this Wednesday. In parallel to a resemblance of a crash as of Feb. then looking at past open and close prices of IWM on yahoo:
It came evident that weakness in price was seen from Thursday the day after Feb VIX futures contracts expired. From then the market simply rolled over. The spot VIX only inverted to backwardation on the following Monday at Feb. 24, 2020, the current VIX futures is in contango. So the setup is similar now as in Feb. but near end of the year institutions have a lot to buy and is usually very bullish. Sentiment overall is very bullish, so a good indicator if a short is in the cards is to see price action moving up back to last Monday's high and how it reacts there. IWM reached up to 178 on that Monday.
Another indication that the current up move in IWM maybe of a concern is that "RVX" volatility in the index has not closed at a lower low but trending up.
To further validate this the MACD since June has been rising for the IWM volatility. The 27.5 has been a point of where it bounced off and continues to be as such since August. If it continues to drop 27.5 must be kept closely watch to see signs if it will hold.
Lastly back to COT it is worth mentioning the both /NQ futures and /ES futures which are Nasdaq and SPY respectively have no real edge seen in positioning. From this I would not try to short either one if the market weakens since no visable edge in either.