Not The End Of The World/One Day At A Time

Random Thoughts

Note: Due to a scheduling conflict, there will be no column on 02/21/14.

The Ps rallied to near all-time highs but fizzed out to close poorly and in the minus column, losing well over ½%. This action forms an outside day down. The fake-out to the upside has likely drawn in a few “Johnny Come Latelies.” These traders are the last in and the first out.

The Quack lost over ¾% for the day.

It is not the end of the world, nor can you see it from here. The market has begun its correction from an overbought condition. If it can stabilize and turn back up to make new highs then we can all breathe a collective sigh of relief.

As you know, I have been concerned about the “V” shaped recovery at high levels. To repeat, it is hard for a market to mount a new leg on top of an old one from an overbought condition. As usual though, take things one day at a time.

As you would expect, a lot of areas have stalled out near their prior highs to form the “V” pattern. These include but certainly not limited to Chemicals, Automotive, Foods, Financials, and Health Services.

Many such as Banks, Transports, and Manufacturing have stalled well below their prior highs. This action give them a deep retracement and/or a Gatekeeper look (email me if you need the pattern).

There was no place to run and no place to hide. Gold, Silver, and Bonds all ended lower.

Although lower on Wednesday, some areas such as the Semis, Drugs, Internet, and selected other Technology have recently broken out to new highs. So far, they only appear to be pulling back (i.e. correcting).

Gold and Silver also only appear to be correcting. In fact, begin looking for new setups here.

So what do we do? I like the Gold and Silver stocks because they can trade contra to the overall market. Outside of that area, make sure you really like the setup(s) in light of the market’s overbought condition. On the short side, ideally, I like to see only a few up days in the pullback before the next wave down begins. This helps to trap the most people on the wrong side of the market. So, as you would imagine, based on the number of days in the recent run up, I’m not seeing a lot of meaningful shorts.

Futures are weak pre-market. Looks like Johnny is bailing.

Best of luck with your trading today!

Dave

P.S. Come to the Chart Show if you are not too busy saving lives, building buildings, repairing automatic transmissions, or doing other great things.