Fed Throws “Tootsie Roll” Into Punch Bowl–Now What?
By Dave Landry | Random Thoughts
Random Thoughts
I avoid the news at all cost. However, since I have made markets my livelihood I often get some through osmosis. When I fired up my charts* this morning the headline read “Market Sells Off on More Taper Talk.” So let me get this right, every time the market rallies, the Fed is going to throw a “Tootsie Roll” into the punch bowl? (e.g. 05/22/13) And, whenever the market begins to sell off, they are going to come out with a “just kidding?” (e.g. 06/24/13) Obviously, the Fed has run amuck. This leaves me with two choices, 1) Let this get to me. Or 2) Drop an F bomb and get back to the charts.
I think I’ll go with #2, no pun intended. My goal is to look at the charts and make as much money as possible while the Fed jawbones. If it starts going down, I short. If it goes back up, I stay long and add. Hopefully-and I hate to use the word “hope” in this business-my money and position management will allow me to capture some decent trades in between.
Okay, let me step down from my soapbox and get back to the charts. Just a few days ago the market was at new highs. As a trend follower, you don’t fight it. In fact, I was all warm and fuzzy about this (see the newsletter archives, I even had a picture of some lovers). However, things can change quickly. That’s why I’m a one-day-at-a-time kind of guy.
The Ps sold off fairly hard, losing just over 1/2%. This action puts them back into the top of their recent range. It also has them relatively unchanged on a net net basis for the last several weeks. In fact, if you look back a little further, you’ll see the index really hasn’t cleared its May peak.
The Quack is looking a little bit better. So far, its recent breakout remains intact.
As you know, I’ve been bullish on selected Metals & Mining lately. Well, they got whacked on Tuesday. The good news is that most of the stocks here did not trigger an entry. This exemplifies the importance of recognizing a new trend that might be developing but letting the market prove you right. By just waiting for entries you can often avoid losing trades. I’m going to flesh this out in a lot of detail in tomorrow’s chart show. Email me for a password if you haven’t gotten around to purchasing Layman’s.
So what do we do? Sometimes when the market gets questionable the database recognizes this and provides slim pickings. This is usually a sign for me to sit on my hands and wait patiently before making my next move. If the market can shrug off the latest fluff and go on to make new highs, then we look to add to the long side. If it begins to drop in earnest, then we begin to short. And, if it goes sideways, we wait. As I wrote in Layman’s, Tom Petty was right, the waiting is the hardest part (but don’t let them get to you).
Best of luck with your trading today!
Cheers,
Dave
*08/06/13 Worden Report. I use Telechart Platinum for my US equity work. Use the banner ad on davelandry.com for a free trial or affiliate code 136 for phone its. Email if you need scans. See my website for videos on how to get them set up and running.