And Then There Were None

Random Thoughts

Recently, I discussed how buying oversold will work until it don’t. This is why I joked about doing just that and ending up living in a cardboard box. Now you know.

It’s difficult to initiate new positions in an oversold environment. As I preach, it’s darned if you do and darned if you don’t. If you short, the market will bounce. If you don’t it won’t. Yesterday, I received an email yesterday saying that they wish they had more shorts on. No sh*t, me too. That’s the market doing its job frustrate the most.

Let’s look at the scoreboard (now the bulls know how the Broncos feel):

The Ps lost over 2 ¼% of their value. This has a lot of people looking at the 200-day moving average, circa 1700, as the next possible target. That’s certainly plausible. That also corresponds to previous breakout levels. For those keeping score, Monday’s action triggered a Bowtie sell signal. See my website for the pattern or pick up a copy of Layman’s—hey, somebody has to pay for this column. Not every Bowtie off of major highs will turn into the mother-of-all-tops but every major top will have a Bowtie or one of my other transitional patterns. Write that down. You’re welcome.

The Quack got whacked for over 2 ½%. Longer-term, it still looks better than the Ps. Obviously though it has got to stop at some point. Let’s not even talk about where the 200-day is here.

If you are like me and look at a couple thousand stocks daily, you’ll know that yesterday was ugly. If you are like Sweet “ain’t nobody got time for that” Brown, you can just look at the Rusty. It got over a 3% haircut.

The selling was ugly and indiscriminate. Out of the 239 sectors that I follow daily, only 1 ended higher—Personal Computers. And, that’s only because its main component, Apple, bounced a smidge.

It was good to see that at least Gold the commodity get a bid along with Bonds. So, it wasn’t a complete liquidation type of market.

Gold the stocks were soft but still remain about the only promising area on the long side. Continue to watch for opportunities here but obviously, wait for entries.

Well, Drugs and Biotech got hit especially hard. As I said yesterday, “I think it is important to watch to see what happens to the last of the Mohicans.”

I don’t want to bore you by going through all of the sectors. Just know that many broke down out of Bowties and First Thrusts/Micro First Thrusts.

One sector that did catch my eye is Asset Management. It got clipped for over 4%. These stocks tend to implode the quickest when the market is in trouble.

So what do we do? It’s too late for this cycle to establish new shorts. Wait for the bounce. We’ll have a plethora of setups then. Once that occurs, look for opportunities in those stocks that are just breaking down from high levels—the bigger they are, the harder they fall will likely apply. Honor your stops on any leftover longs and trail your stops lower on your shorts. On the buy side, I think the only thing that is still worthwhile is the Gold stocks. As usual, just make sure you wait for entries. It seems that the bottom here has become more of a process than an event.

Futures are strong pre-market.

Best of luck with your trading today!

Dave