Market Got You Scratching Your Head? No Worries, Do This

Random Thoughts

A market’s job is to shake out and fake out as many as possible. As I have been saying, trend following is like riding a bouncing bronco (Covel/Dunn).

Around noon yesterday, it looked like all was good in the world. The market had completed a 180 right back up from Wednesday’s slide and it looked poised to go back to the business of making new highs. My thinking was that the market had fooled both the bulls and bears—at least those who live and die by every tick. Unfortunately, the market peaked intra-day and then sold off fairly hard. This creates a bit of a head scratcher.

Let’s look at the scoreboard.

After a very impressive rally, the Ps (S&P 500) gave up most of their gains. They still managed to hold on to ½%. I suppose that’s better than a poke in the eye. Ditto for the Quack (Nasdaq)

The Rusty (IWM) also put in a solid rally before tailing off. For the day, it held on to .40%. This action keeps it in a short-term range.

Again, Thursday’s action is a bit of a head scratcher.

The good news is that you don’t have to call every zig and zag. If the market begins to rollover, then no new longs will trigger and you’ll likely get stopped out existing longs. Shorts will soon begin showing up and you’ll be back on the right side of the market.

If the market goes back to making new highs, then your longs go back to making money.

The worst thing would be a sideways market where there are few buy side or short side opportunities.

For now, let things shake out a bit.

Keep an eye on the inflection points mentioned in Wednesday’s column: circa 2,000 in the Ps and 4,600 in the Quack.

So what do we do? I’m not seeing a lot of new meaningful setups. This is okay. This is the database saying that I should focus on managing what I already have and hold off on anything new. Sometimes your best new action is no new action. Let ‘em fight it out. If you get stopped out, then exit the position. If a position hits the initial profit target then take partial profits and trail your stop higher. Get hungry, eat something. Therefore, once again, there’s no need to be a hero–let the ebb and flow control your portfolio.

Best of luck with your trading today!

Dave