Let’s Not Start Kissing and High Five-ing Just Yet

Random Thoughts

Well, the market continued higher for its 3rd day straight. This action has caused a lot of excitement in the media. Well, let’s not start kissing each other and high five-ing just yet. So far, nothing has changed. If fact, much of today’s newsletter is a cut and paste from recent commentaries.

The indices only appear to be pulling back. In fact, if you don’t already have some shorts working, you might look to short the index ETFs until you do. Longer-term it’s hard to catch a trend in index shares (see my webcasts on efficiency) but shorter-term they can help to give you needed exposure.

Gold continued to implode. Again, when gold drops in light of all the (recent) weakness, it suggests a liquidation type of market. Someone (still) needs to raise cash and fast.

Yet again, most sectors still remain in downtrends. Regional banks are about the only notable exception. They could set up soon as pullbacks. Unless something changes drastically overall, I’m going to have a hard time buying in this market.

Even though the market continued to bounce, not much changes. So far, the indices, most sectors, bonds, gold, you name it, remain in downtrends or questionable at best. The longer the market remains below the 50 day moving average and below overhead supply (the recent consolidation), the more pressure will be put on those to exit. If the market comes right back, then the buy and hope crowd will be rewarded and will continue to sit on their hands. So, we (still) need a massive rally, and quick.

So what do we do? For the most part, more cutting and pasting: Continue to keep an eye out for new shorts. As mentioned above, use ETFs while looking for new opportunities in individual issues. Continue to avoid the long side for now–unless you really like a setup and think it can trade contra to the overall market. Manage existing shorts. Honor your stops just in case the market continues to bounce. Take partial profits/trail your stops lower as offered. Honor your stops on existing longs. As I preach, letting the ebb and flow of money management and portfolio management (entries, stops, trailing stops, taking partial profits) can help to keep you on the right side of the market/in the right issues—especially in questionable conditions. If the market goes up, we’ll get stopped out of our shorts, our longs will start performing, and there will be new longs setting up. If the market goes down, we’ll get stopped out of our longs, the shorts will begin to pay off, and new shorting opportunities will present themselves.

Futures are weak pre-market.

Best of luck with your trading today!

Dave