On Chips And Will Rodgers

Random Thoughts

I have a childlike wonderment. I’m always thinking about something. Sometimes, I wish I could turn it off but I can’t so I embrace it.

On Saturday afternoon we stopped for supplies while on the way to a friend’s surprise 50th. I noticed the new Lays Bacon Mac & Cheese, Cappuccino, Mango Salsa, and Wasabi Ginger chips and just had to have some.

I woke up Sunday morning thinking, would the Cappuccino chips bring me back to Italy where it is impossible to get bad cup of cappuccino–whether it be at a small cafe near the base of Mt. Vesuvius after a chilly climb or a much needed pick me up at truck stop half way through a coast to coast drive. I also thought since I was slightly over served at the party, now might not be the best time to sample the chips—especially the wasabi—I once snorted wasabi on a double dog dare which, by the way, has cured me from sushi forever (and most double dog dares).

So what do chips have to do with the market? Well, the chips are obviously a novelty. There’s a lot of buying but this quickly exhausts itself when reality sets in. This got me thinking about the bell shaped curve of fads and bubbles. You can ride it up and hop off and then sometimes even double dip and ride it back down. Unfortunately, Pepsico is a huge company so there will be no bubble to ride here (although I have driven quite a few Mountain Dew sales).

The bubble thing did get me thinking about how if a market is going to go from a to c and b is in between (a < b < c), it’ll have to pass through b on the way. And, when you’re plotting that 15th oscillator, just remember, to profit you only have to sell higher than you buy or cover lower than you shorted. Write that down.

The question is, can you just buy at “B”?

Well, there’s a little more to it than that but in bubbles driven by a fad, story, or glory you can almost do just that. That is the basis of my “Buy at B” IPO strategy. You get in early but not too early. You wait for a rally to be confirmed. And if it doesn’t go up, you don’t buy ‘em. I suppose it could also be named the Will Rodgers strategy. Anyway, I’ll be discussing this in the first follow up webinar from my recent IPO webinar (“/begin soft sale” there is still room available…see my store if you want to join us “/end soft sale”). The bubble may have popped in IPOs but some still are defying gravity. And, there are some anticipated ones on the horizon. So, in my best Monty Python voice, “they’re not dead yet.” Also, by following Will Rodger’s/Big Dave strategy, a lot of bad IPOs have been avoided lately. See “free videos” on my website for last week’s Dave Landry’s The Week In Charts for more on this which includes my best “bring out your dead” imitation.

Okay, let’s get back to the overall market. When we left off on Friday morning, I was talking about the “wedging” action lower in the Ps (S&P 500) and how it was oversold and due to bounce. My point wasn’t that this would be a tradable bounce but rather to make darn sure you wait for entries on any new shorts. Well, we got the bounce. The Ps tacked on well over 1%. And, so far, the futures are strong so we might be able to add ½% more to that, at least on the open.

Unfortunately, the bounce only sets the Ps up as a Bowtie down after all-time highs. See the aforementioned chart show (and my Youtube channel davelandrydotcom) for more on this. When a market forms a transitional (i.e. emerging trend) pattern after all-time highs it often pays to pay attention. Not all transitional patterns will turn into the mother of all tops but all tops will have a transitional pattern.

The Quack (Nasdaq) still looks a little bit better than the Ps. It’s holding near the bottom of its short-term base. On Friday, it gained over ¾%. There are no sell signals here just yet but if 4300 gets taken out there will be.

Although the Rusty (IWM) had a good day, tacking on nearly 1%, so far it is only pulling back in its downtrend. And, it looks poised to resume its downtrend. Sell signals have already triggered here-see column archives.

There’s not much to report in the sectors. Most bounced with the overall market. Unfortunately, like the overall market, it appears to be just that, a bounce. This sets up many for a new leg lower.

So what do we do? I think the bounce is a gift–a chance to look to establish some new shorts. Like Will though, if they don’t go down, don’t short ‘em. Said alternatively, make darn sure you wait for entries. You know the routine on existing positions: Let your stops take your out or keep you in. One other point, for the aggressive, keep an eye out for an opening gap reversal. See my articles under free education for more on this.

Best of luck with your trading today!

Dave