Live To Fight Another Day

Random Thoughts

Recently, I have been talking about the fact that the Ps (S&P) have dropped in volatility. I was referring mostly to the fact that they have been relatively unchanged on a closing basis—as measured by historical volatility and just plan simply, “eyeballing” the chart. What’s interesting is that they have also been trading in a narrow range. As I wrote on 09/05/14:

“When volatility does begin to expand from a low volatility situation, often the first move is a false one. Then, after the shake out, the market continues in the opposite direction.”

The Ps broke down out of their range, losing .65% for the day. Let’s hope, and I hate to use the word hope in this business, that this is the fakeout before it resumes its longer-term trend.

As usual, there’s no need to be a hero. Wait for the market to turn back up before getting too excited.

Let’s look at the rest of the market.

The Quack (Nasdaq) got whacked fairly hard, losing over ¾% for the day. This action has it returning to the bottom of their short-term trading range. So far, the longer-term trend and August breakout remains intact.

The Rusty (IWM) is back to being a little disappointing. For the day, it lose well over 1%. This action puts into question the recently mentioned 2-step forward, 1-step back action.

As you would expect with the weak indices, a lot of areas got hit fairly hard.

Although with less vigor, Energies continue to slide nonetheless. If this action continues, we could see transitional (emerging) trend sell signals here soon.

Retail got hit fairly hard. So far though, it only appears to be correcting its recent sharp move higher. Wait for it turn back up since any additional weakness could be concerning.

Banks were hit fairly hard once again. They are now well below their prior breakout levels.

The Semis sold off fairly hard. This action has them stalling at their prior peak. Some other areas like Utilities also stalled at their prior peaks.

There were a few bright spots out there. Health Services and HMOs managed to make new highs.

Metals & Mining, which have been sliding as of late, bounced a bit.

Speaking of the metals, Gold the commodity caught a tiny bid. Some day we are going to see the mother-of-all bottoms here. And, Big Dave will help you by pointing it out. For now, step aside and let it do its thing. It appears that it will be more of a process than an event.

It’s not the end of the world nor can you see it from here*. It’s a just a test–another “bad hair” day. Again, hopefully, and I hate to use the world hope, this is just a fakeout.

So what do we do? In light of the weakness, make sure you honor your stops just in case. As I preach, he who fights and runs away, lives to fight on another day. As usual, unless the market is going straight up, make sure you are selective and really really like a setup. And, once you are convinced you’ve found the greatest thing since sliced bread, make sure you wait for an entry. As I preach, that in and of itself can often keep you out of new trouble. Just yesterday I noticed a few of my picks that failed miserably. However, no harm was done because they didn’t trigger. Avoiding as many stinkers as possible through being selective and waiting for entries is key. On the short side, I wouldn’t rush out and start shorting just yet. Do pay attention to the developing situation, especially in areas like the Energies that could be in the early phases of turning down.

Best of luck with your trading today!

Dave

*A Robin Williams-ism