Confused About Market Direction? Ask Yourself These Three Things

Random Thoughts

Like Lincoln said, “The great thing about the future is that it comes at you one day at a time.” There’s been a lot of fear mongering about this market but yet, it has failed to crack significantly. And now, it has begun to rally. Thursday’s action scores as a major positive. As usual, follow through is always key. It sure looks like we are off to a good start though.

Now, let’s not start kissing each other just yet. My point is to avoid big picture predictions and take things one day at a time. The fact that I don’t pontificate and just follow along has earned me the title Trend Following Moron. This title stuck. It, more than anything, makes me realize that what is, is.

In yesterday’s chart show (watch on Youtube), after a lengthy discussion about methodologies with a lot of moving parts, I told everyone look, there are 3 things you need to ask yourself about a market and three things that you need to do to act accordingly:

1. Is the market going up? Yes? You should be buying stocks.
2. Is the market going down? Yes? You should be shorting stocks.
3. Is the market going sideways? Yes? You should be sitting on your hands.

It is that simple. I never said it was easy. The point is that when you find yourself plotting that 15th oscillator or trying to figure out if it’s a 3rd of a 5th or 5th of a 3rd, stop and look at the net net change in price. Is the market higher, lower, or about the same as it was a week ago, a month ago, and so forth. I put up, down, and sideways on the back of my business card. This serves as a constant reminder. Whenever I get too full of myself making a big picture prediction, this reminds me that what is, is.

The picture above is an actual scan of my business card. And, btw, the bull is not having his way with the bear and smiling about it. Send a S.A.S.E. to Sentive Trading, LLC P.O. Box 298, Abita Springs, LA 70420 and I’ll mail you one. Then, whenever you lose your way, just look at the back of the card.

Obviously, there’s some tongue in cheek in the above but the point is that many make it much more difficult that it has to be. Sometimes, it’s right in front of you.

Okay Big Dave, up, down, or sideways? Well, the market has been sideways for a considerable amount of time. Thursday’s action does score as a major positive.

Let’s explore that further.

Many areas banged out new highs. This included but not limited to Health Services, Real Estate, Selected Drugs, Tobacco, Foods, and Defense.

Other areas such as the Trannys, Durables, and Conglomerates came back with a vengeance and are now just shy of new highs.

Banks, which have been left for dead, put in a serious rally, gaining nearly 2 ½%. They still look dubious longer-term but this certainly scores as a positive. In my best Monty Python voice, they are saying “I’m not dead yet!”

I’m jazzed about Thursday’s action but I know I have to temper that with the fact that it just one day and the big blue arrow does continue to point sideways.

So what do we do? For the most part, continue to wait to see if the market can follow through and get out of this gosh darn range. At the risk of preaching, continue to take things one day at a time. Yes, Thursday was awesome but let’s see what Friday (and MUN-day, Tuesday, Thursday, Wednesday, Friday, Sunday, Saturday) brings. Based on the positive sector action, if you really like a setup, then take it. The point is to remain selective and avoid any big picture predictions, especially while the arrow points sideways. And, I bet you thought that I forgot, nope, no such luck: wait for entries on new positions and honor your stops on existing ones.

Best of luck with your trading today!

Dave