Keep Some Powder Dry

Random Thoughts

Watch Dave Landry’s The Week In Charts.

New article: 7 Secrets To Trading Success (scroll down once there).

You’re motivated. How do I know? Well, if you’re interested in trading then you’re looking to improve your financial wellbeing. In the real world you do this by taking action. If you’re a doctor then you better do some doctoring. If you’re an accountant, then you better do some accounting. So logically, you’d think that if you’re a trader, then you better start trading. Unfortunately, Beatrice, “that’s now how it works.” Sometimes, the best thing to do is nothing. Now, your bottom line doesn’t increase but it doesn’t decrease either. Sometimes, it’s the return of capital that’s more important than the return on capital. As I preach, it’s hard to quantify not losing money. No one ever sends me emails thanking me for keeping them out of trouble.

As I wrote in Layman’s, Tom Petty got it right: “The waiting is the hardest part.” This goes against human nature. You succeed by taking action. In trading though, you have to let the market come to you. You have to wait and not anticipate.

It looked a little ugly coming into this week. As mentioned, my inbox was filled with plenty of convincing arguments why the sky was falling—but it didn’t. Now, this doesn’t mean that you should stick your head in the sand and not pay attention. Do your homework but let things unfold. Do honor your stops just in case-he who fights and runs away lives to fight another day. Yet again, the point is to wait and not anticipate. People often forget the “following” part of trend following.

Let’s look at the markets.

The Ps (S&P 500) gained just over 1% (1.03%). This action has it approaching the top of its trading range—about 1 1/3% away from all-time highs.

The Quack (Nasdaq) followed suit, gaining precisely 1.03%. It is now less than 1% away from 14-year highs.

The Rusty (IWM) was slightly stronger. So far, it too remains stuck in a range but is now also now less than 1% away new highs—all-time highs here.

The sector action continued to improve. It was good to see Drugs and Biotech—which took a breather earlier in the week—come back nicely.

Some areas like Retail continued to break out to new highs.

Many of the range bound areas like the Semis are now approaching the top of their trading range.

What a difference a few short days can make. This is why you don’t want to get too excited one way or the other while the market is stuck in a range.

But surely there is some action to be taken you ask? First, stop calling me Shirley. And, Yes. There are a few opportunities in those areas that can trade independently of the indices. Right now, I’m liking the Metals and Mining, especially the Gold and Silver Stocks. The Energy stocks appear to be bottoming. I wouldn’t rush out and buy here just yet but I do think that the underlying commodity (USO) might be worth a stab. It is set up as a Pioneer First Thrust. This is an early emerging trend pattern. I used the word “Pioneer” in the title since like the American Pioneers, you’re either going to get the gold or arrows in your back—the chance of the gold makes it all worthwhile. Do wait for entries and as usual, honor your stops once triggered.

So what do we do? Focus on the aforementioned commodity/commodity related areas. Other than that, remain patient. It’ll be nice to have a lot of fodder ready for when the trend resumes.

Keep some powder dry.

Best of luck with your trading today!

Dave