One Less Thing To Worry About

Random Thoughts

In an interview on Wednesday (which I will post once I get the link), I said that it wouldn’t surprise me if the market rallied into Friday and then sold off. Futures are weak pre-market. Apparently Ebola is once again a concern.

I’m not telling you this to brag (and “day ain’t over yet”), it’s just that you have to have a framework to work around. No one knows for sure exactly what a market will do. As mentioned yesterday, the market is made up of a lot of often irrational participants.

Getting back to the news, earnings were great but a lot of stocks sank in spite of this. Skechers Usa (SKX), a stock that we are short in the model portfolio, is “exhibit A.” Their earnings increased by over 100% yet the stock still sank. Avoid all news and your trading life will become much better. But Dave, if you ignore news, how did you know that they had killer earnings? Well, I get a little through osmosis but I make sure that I ignore it. As I said in the aforementioned interview, I don’t trade the news but if I was forced to, I’d fade the news.

The Ps (S&P) had a decent rally, tacking on around 1 ¼%. They did tail off its best levels though. This action suggests that they might be losing steam. And, once again, so far, they only appear to be pulling back, albeit deeply, from their recent slide.

But Big Dave, at what point is the pullback more than just a pullback? Well, obviously, if we go on to make new highs then it’s no longer a pullback. I learned long ago not to try to catch ever zig and zag. If it goes back to new highs without me, so what. Longer-term I know that I will be on the right side of major moves. Shorter-term I might get knocked around a bit or have to sit things out and wait. So far though, again, we had a serious slide and a deep retracement of that slide.

As I often preach, they never really make it easy on you. If a market is going to tank, it will first rally just enough to suck in some bargain hunters, make the buy and hope breathe a sigh of relief, F’ the shorts, AND THEN it will tank.

Don’t obsess over the overall market too much. As I preach, it is tougher to predict the direction of the overall market than it is to predict the direction of individual issues, at least less efficient issues. There’s not enough time to get into efficiency in this forum, see Thursday’s Week In Charts (once again free, see below, you’re welcome!) for more on this.

What’s keeping me bearish? Well, I try not to label myself bull or bear but I suppose I have been a little bearish lately. The problem is that the damage appears to have been done. Many individual issues have already had a 50% haircut. If you do the math, these stocks will have to double just to get back to breakeven. And, that doesn’t happen often. It is a game of clues. If you look at a couple thousand stocks each night, over 200 sectors, quite a few ETFs, and several indices, you get an idea of what’s really going on beneath the surface.

Okay, okay Big Dave. Are you seeing anything good out there? Yes, Biotech made new highs on Thursday. We have one leftover long in the aforementioned model portfolio, Catalent Inc. (CTLT). I was asked if it was an Ebola stock. I dunno. Maybe.

So, what do we do? I’m still seeing a lot of shorts, a plethora of shorts. Therefore, continue to listen to the database and do what it is telling you. This doesn’t mean to swing your bat wildly. Continue to wait for your pitch. Make sure you really like the setup. Make sure you wait for an entry. And, make sure you honor your stop once triggered just in case. That’s a long winded way of saying plan your trade and trade your plan.

Best of luck with your trading today!

Dave