If You Tell Me This, I Will Laugh In Your General Direction

Random Thoughts

The Ps (S&P 500) have recently set up as a textbook Bowtie down from all-time highs. The signal triggered (not a major trigger but a trigger nonetheless) on 08/12/14 but the Ps soon reversed and they has gone up since. This action has them nearing overhead supply (i.e. resistance) circa 1960.

This might turn into another sell signal that doesn’t pan out. That’s fine with me. I’d much rather trade a bull market than a bear. The thing that has to be realized is that the market won’t always come back. If you’ve been in the markets long enough, you know that a new round of suckers comes along around every 5 years or so. And, unfortunately, those suckers have bought back into the buy and hope (oops, I meant hold). Been trading less than 5 years? Well, I hope that sucker thing pisses you off. Now, before you write me a nasty email, study your historical charts. Notice that the Quack (Nasdaq) lost over 70% of its value in the 2000-2003 bear market and the Ps (S&P) lost half of their value in the 2008 bear market. Sooner or later one of these rollovers as signaled by price/pattern/setups will stick. If you tell me that “it’s different this time” I will laugh in your general direction.

It’s one thing to study the charts and another thing to live through the times. Someone recently showed be a buy and hold thing that did well–very well in fact. What they failed to realize is that at one point, it lost over 90%. Seeing that on paper is one thing, losing over 90% of your capital and thinking, oh, no worries, it’ll come back is another.

I can assure you that the market won’t always come back. I’m not saying sell the farm and go crazy bearish every time you see some signs and signals. What I am saying is that you have to do the right thing. Honor your stops on existing longs and make sure you’re looking for opportunities on both sides of the market. Use entries to help ensure that you’re trading with the trend—at least at the moment of the trigger.

Let’s look at the rest of the scoreboard and the sector action.

The Quack (Nasdaq) continue to defy gravity. It tacked on .43%. This action puts it less than ¾% away from 14 year highs. So far though, it still remains in a sideways trading range.

So, the Quack is hanging in there. That’s a good thing. It’s nearly everything else that has me concerned.

The Rusty (IWM) ended a smidge higher. So far, it only appears to be pulling back from its recent downtrend.

Yet again, even with the recent rally, many sectors look poised to continue lower out of a Bowtie down. These include but not limited to Energies, Automotive, Banking, Chemicals, Conglomerates, Transportation, Utilities, Telecommunications, and the Semis. And, again, many other subsectors/smaller areas, have also recently formed Bowties down.

Drugs, specifically Biotech has been improving. Follow through will be key here though.

So what do we do? Not much has changed just yet. Do continue to wait for entries. As mentioned recently, the recent strength in the market has likely kept you out of new shorts. Continue to stay the course. Let the ebb and flow add to and prune your portfolio. As far as new positions, continue to look for opportunities on the short side. I’m not seeing many setups but I am seeing more shorts than potential longs. Therefore, again, this suggests that we should look to nibble on the short side but for the most part, stay out of the water.

Best of luck with your trading today!

Dave

P.S. The first follow up session for the recent IPO webinar will be at 11:00 EDT. If you purchase the webinar between now and then you’ll have access to this webinar and the remaining 3 follow up webinars.