Dig A Little Deeper

Random Thoughts

The Ps and Quack ended flat. Normally this wouldn’t mean much but there’s a little more to the story. The market sold off hard, mounted a sharp recovery, but then began to sell off again late in the day.

A market ending slightly higher is normally viewed as positive both figuratively and literally. I actually view it as a negative since the intra-day whipsaw puts stress on participants. Also, again, the market did lose steam towards the end of the day.

Backing the charts out a bit, the Nasdaq remains stuck in a range. As I preach, things will look great when a market approaches the top of its range and they will look a little ominous towards the bottom. Unfortunately, there will be a lot of fakeouts and false moves along the way. So, don’t anticipate. Wait. Let it breakout (or breakdown) and see if it sticks.

The Ps still look a little questionable longer-term. Last week’s really only looks like a pullback from their recent slide. Also, recently mentioned things such as a potential double top and a Bowtie down from all-time highs remain intact.

On the surface, the market ended slighter higher. However, it is important to dig a little deeper. Most sectors still look questionable at best. Areas like the Banks neared their prior highs but stalled on Friday. Stronger areas like Biotech failed to make new highs. And, as mentioned last week, you can still count the strong areas on one hand.

Again, it often pays to listen to the database when looking for direction. And, other than the aforementioned Gold and Silver stocks, it is still producing more meaningful shorts than longs.

So what do we do? Not much has changed as far as the plan. In general, avoid the long side unless you really like the setup and, ideally, the stock can trade contra to the overall market (e.g. Gold and Silver). On the short side, continue to focus on the previous high fliers that have fallen from grace such as Retail. No matter what you do, make sure you wait for entries on new positions and honor your stops on existing ones. As I preach, letting the ebb and flow of position management—often with just those 2 simple techniques-can help to keep you on the right side of the market.

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Futures are firm pre-market.

Best of luck with your trading today!

Dave