Hop In-The Waters Fine

Random Thoughts

A few days ago I wrote about how markets will do what they have to do to frustrate the most. If they are going to tank, they will have the mother-of-all rallies first to make everyone think that the water is fine—come on in!

Let’s look at the scoreboard. The Ps put in a decent rally, gaining over 1%. This action has them continuing to bounce nicely off the bottom of their trading range. And, it’s enough to have them approaching the top of their trading range. On the surface, this looks pretty good.

The Quack had a very impressive day, gaining nearly 1 ¾%. Unfortunately, this doesn’t erase all of last Friday’s debacle. So far, it only appears to be retracing its recent leg lower. By the way, on a net net basis, the index is unchanged for 2014.

For the most part, the Rusty (IWM) looks like the Quack.

Looking to the sectors, I find it interesting that the defensive issues: Energies, Utilities, Foods, and Tobacco continue to rally, even when the market is headed higher. Funds are still flowing here. One has to wonder: do they know something? That’s what technical analysis is all about—following the money, the reasons often come much later. Write that down.

As you would imagine, areas that have been in serious slides like Drugs & Biotech, Internet, and Software bounced. So far though, it appears to be just that-a bounce.

A plethora of areas still remain below their prior peaks, these include but not limited to: Manufacturing, Consumer Durables, Consumer Non-Durables, Retail, and Leisure.

Other areas that have broken out but dipped back below their breakout levels such as Health Services and Aerospace/Defense bounced but still remain below their prior breakout levels.

Don’t get me wrong, it was another good day in the market. Unfortunately, other than the Ps and defensive issues, things still look questionable.

So Big Dave, are you saying this is “the water’s fine” rally? Well, it sure feels that way. The good news is that you don’t have to get your market timing exactly right. As I have been preaching ad nauseam, let your stops take you out of positions that are no longer viable and let entries trigger you into new possibilities—long or short. Pick the best of the best stocks to begin with. A good offense is often your best defense. In this market, I would focus on those stocks that can trade contra to the indices just in case. On the short side, focus on the aforementioned tech areas that only appear to be pulling back from their recent slide.

Futures are flat pre-market.

Best of luck with your trading today!
Dave