The Forest For The Trees Plus A Very Simple Way To Analyze Markets
By Dave Landry | Random Thoughts
Random Thoughts
You can only predict the short-term when it comes to markets. As I preach, if someone is convinced that the market will be higher next year then they should sell all of their possessions and put that cash into the market. Obviously, that’s a bad idea because all predictions are about the future and a lot of $#*! can happen between now and then. Again, only the short-term can be predicted.
My short-term time frame is the daily chart. My job is to figure out where the market(s) are likely headed near term and look to get aboard for a swing type trade—if and only if the opportunity presents itself. Then, if things work out, I’ll stick around for a longer-term move. Although the money & position management often takes me out much sooner, sometimes positions will go weeks, months, and yes, occasionally years.
So, am I a shorter-term or longer-term trader? Yes!
With markets it is important not to be too close to them. Watching every tick can turn into an exercise in futility. Each tick seems to be much larger than it really is. You end up chasing your own tail.
Now, admittedly, when a market makes a large move like it did on Wednesday, I’ll have a little peek intra-day. Remember, patterns are fractal. What works in one time frame, works in others. With that said, the Ps have formed an hourly Bowtie down (email me if you need the pattern). What’s concerning is that this is the second signal coming off a double top. Further, the prior peak is at all-time highs. The “second mouse gets the cheese” often applies with transitional patterns—especially when the prior pattern came off of all-time highs.
It’s not the end of the world. It’s an hourly signal. It has to start somewhere though. Hopefully, (and I know hope in one hand and, well, you know) it doesn’t work. Or, at the least, it doesn’t work big.
Now, let’s get back to the forest. The Ps got whacked on Wednesday, losing over 1%. This action puts them back to the top of their recent base, aka support—circa 1775. It is important for this level to hold.
When analyzing markets, it is vitally important not to forget to study things on a net net basis. Where is the market now? Where was it one week ago? Two weeks? and so forth. With that said, the Ps haven’t made any forward progress in nearly a month. Draw your horizontal line at 1775.
I don’t want to digress too far, but I’d venture to say that if all you did was study markets on a net net basis over a variety of periods and draw your arrows, you’d do much better than those who count bars/waves, trade the Baby With The Poopy Diaper Pattern, and/or use 15 oscillators.
Getting back to the markets, the Quack got whacked too. It lost nearly 1 ½%. This action also has it back to prior support, circa 4,000. It’s important for this area of its prior breakout, 3,965 to 4,000 to hold.
I don’t even want to talk about the Rusty. It got wacked for over 1 ½%. This action puts it well into its prior trading range. The net net thing here is nearly 2 months without forward progress.
As one would expect with the broad based Rusty ($IWM) down so much, the sector action was abysmal.
The baby pretty much got thrown out with the bathwater. I hate to see such liquidation markets where even bonds and precious metals sell off. No flight to safety. No place to run. No place to hide.
Okay Big Dave, you’re starting to sound a little ominous. And, btw, you’re now two pages into your daily column. How much coffee did you have? Well, we ran out of Community Coffee so my wife picked up some Duncan Doughnuts on the fly. I can’t stop drinking it! Don’t worry Community, I’ll never leave you.
Well, it is ugly but it is just one day. There is a sell signal but it is just on the hourly chart.
So what do we do? Well, as I said yesterday, you have to be very careful not to label yourself. When things are getting mixed like this, it’s okay to play both sides. For the most part though, you want to be very selective. Make sure you really really like a setup. Ask yourself, is this really the greatest setup in the world? And, if it took off without me, could I live with myself? If you can’t stand it, then take it! Just make darn sure you wait for entries. And, once triggered, make sure you use and honor your protective stops. Although trading is an active verb, if you are not finding any opportunities then it is okay to sit on your hands. Write that down.
I’m going to flesh out all of the above out, plus much much more later today in the chart show. With everything developing as it is, I think this would probably be a good show to make. So, call in sick if you have to. There is no password again this week. Between the Duncan’s and the Dew I plan on being jacked up. I have a lot to cover and talk really fast. So, eat your Wheaties if you plan on keeping up. And, if you can’t, no worries, I’ll record it and give you a free copy again this week.
Best of luck with your trading today!
Dave