Be Careful Not To Chase Your Own Tail

Random Thoughts

We have entered a market where you have to be careful not to chase your own tail. Big up days will look like the Ps (S&P 500) will break out and big down days will look like the market has failed. Follow through is key. A trend is a series of up or down days. The Ps have changed directions (up/down or down/up) in 6 out of the last 10 days. This has them relatively unchanged for nearly 2 weeks. Back the chart further out and you’ll see that they are relatively unchanged for over 2 months. And, for those keeping score, they are up less than 2% for the year. One big down day would negate that.

The Ps are just shy off all-time highs. Until they can break out and hold, you might want to remain in “show me” mode. My other concern remains the fact that most of the strength in the Ps is in the Defensive issues. There has been some improvement lately but for the most part, defensive issues continue to lead the way. Again, the market will likely be materially impacted when, not if, these issues correct. As usual, take things one day at a time. Maybe a bunch of new leaders will emerge.

Although the Quack (Nasdaq) remains in a downtrend, it too has become choppy as of late—changing direction in 7 out of the last 10-days.

The Rusty (IWM) also remains in downtrend but is also choppy. It remains relatively unchanged for over 3-weeks.

I hate it but I’m being forced to dust off my sideways arrows.

So what do we do? Defensive issues are still trending. I’m seeing a setup or two in the Energies so you might keep an eye on them. I just hate playing “the only game in town.” I prefer it if most stocks were trending. That way, the rising tide lifts all boats. On the short side, I’m still seeing a few setups. My concern is that they will not follow through since the market has become so choppy. For the most part, I think sitting on your hands while the market finds its way is the best action.
Best of luck with your trading today!

Dave