” As In Birth Control, Hope Is Not A Strategy “

Random Thoughts

Lately things have been looking a little iffy. The good news is that many sectors and the indices found support and bounced (read further). I’d love to say that we’ve dodged a bullet but we could be entering a Marsellus Wallace market where things are “pretty freaking far from okay.” I do hope the market goes back up but in the meantime, I think I need to believe in what I see and stay cautious. Speaking of hope, my buddy Tom McClellan replied to my last column:

Thanks for the mention Dave. I’ll add one more for your quotations list, from my cavalry squadron commander in Buedingen, Germany, Lt. Colonel Don McFetridge: “In military operations, as in birth control, ‘hope’ is not a strategy.”

Tom’s right, hope is not a strategy. So what is? Well, in Thursday’s chart show (below, enjoy!), I once again talked about the Steve Winwood trade—“When you see a chance, you take it.” Is it truly a great setup? Can you find something even better? Could you really stand it if you passed on the trade? Is it intuition or, as written in Market Wizards, “into wishing?” If you do have what you think is the mother-of-all setups, then, like Steve, you take it! This means that you might have to put your ego aside and believe in what you see and not in what you believe. You might even have to buy something like Greece. I know, crazy huh? If it passes the litmus test and “can’t stand not taking it” test then take the trade.

Now, no matter how well thought and great the setup looks there is still a chance that you could be wrong. I’ve been right on 11 out of the last 12 trades in the model portfolio but I will tell you flat out, I’m not always this good. I did see chances worth taking and took them. On the 1 stinker, I can tell you with 100% conviction that if I saw the same setup today, I’d take it. BTW, always do a post mortem, especially on losing trades to make sure that the opportunity was truly there. As the years go by, like me, you’ll find yourself saying “What in the hell was I thinking?!” less and less. Instead, you’ll mostly say: “Well all the stars were aligned and it looked like it had tremendous potential. It just didn’t work. ‘IT’ happens.  Next!”

The point is to pick the best, leave the rest. Then, use a stop just in case you are wrong, which yes, Virginia, there will be losses. If things do work out, take partial profits and then trail your stop. Stick with it until the market proves you otherwise by taking out your stop. It’s that simple. I never said it was easy but it’s not nearly as complicated as most try to make it.

Admittedly, I do get a little philosophical when I have a horseshoe up my ass but my point is, all I did was follow my plan and it worked swimmingly. Oh, I’m not being smug, the market has handed me my butt on many occasions and it’s not through with me yet. The point is to follow your plan. Sometimes it flat out won’t work but longer-term it will so follow it.

Now, to the markets….

The Ps (S&P 500) had an okay day, gaining well over 1/3%. This action keeps them smack dab in the middle of their sideways trading range—pretty much were they were last Thanksgiving.

The Rusty (IWM) is now officially set up as a Bowtie down from all-time highs. Not ever emerging trend signals will turn into the mother-of-all downtrends but every top will have a signal. See for yourself–study the charts over the last 100 years or so.

The Quack bounced, gaining ½% for the day. So far, the bottom of its shorter-term sideways range, circa 4800, has held.

A lot of the previous high flyers such as Retail and the Semis found support near the bottom of their ranges. I’m glad this happened but let’s not start kissing each other yet.

Some such as Health Services, Drugs, and Biotech remain set up as emerging trend sell signals.

Speaking of emerging trends, emerging uptrends in the Energies, Latin America, and selected Metals & Mining have been taking a break as of late. So far though, the new trend appears to remain intact.

So what do we do? Well, follow the aforementioned pick the best and follow your plan thingy. Right now I’m not seeing many potential longs to get excited about. This is okay, especially with the indices and most sectors remaining range bound. Sometimes the best new action is no new action. We’re not here for action. We’re here to make money. I am seeing a few setups on the short side but I’d avoid getting too aggressive as long as the market somewhat hanging in there. Maybe fire off one here and there just for S&Gs—to keep you in practice. For the most part though, we might be entering a phase where we have to wait for things to shake out. And that’s fine. Sometimes you have to wait for the next paycheck.

Best of luck with your trading today!

Dave