Portfolio Triage

Random Thoughts

Yuck! I’m not sure where to begin. I suppose the first thing I should mention is that once again the Ps masked the true ugliness. The S&P sold off but bounced off its worst levels to end the day just under a ½% loss. So far, it remains in a sideways shorter-term range. Net net, it hasn’t changed much in a nearly a month. It really hasn’t changed much for 2014 for that matter.

The Quack was a little more indicative of what really happened on Monday. It broke down and closed below its sideways range. Although it finished off of its worst levels, it still lost over 1% nonetheless.

The Rusty is still in a range but it too also lost over 1%.

Drugs continued to get hit. They are now down nearly 5 1/2% over the last 4 days. The Biotech subsector continues to look even worse. It lost nearly 3% on Monday. This brings its 4 day total loss to just under 9%. As mentioned on Monday, you really hate to see these prior leaders begin to break down.

Banks somehow managed to close higher but they still remain below their prior peak.

Other areas that have formed similar patterns such as Retail and Manufacturing ended lower. So far, they are taking on a double top appearance.

Internet has now given up all of its gains and then some. It lost over 2 1/2% on Monday. This action puts it well below its prior breakout levels.

For the most part, there was no place to run, no place to hide. So called safe havens Gold and Silver got clipped for 4% and over 7% respectively. Honor your stops here. The rally from the bottom has lost steam (duh).

It was an ugly day–again, much uglier than the Ps alone would suggest.

It was good to see that Bonds got a bid. This suggests that it wasn’t a complete liquidation type of market.

Possible double tops in the works, areas with failed breakouts, prior leaders breaking down, and even Gold and Silver looking questionable…okay Big Dave, you’ve made your case. It’s looking a little ominous. So should we take aggressive action?

No.

Don’t panic. Don’t make any drastic moves. The first thing to do is to apply a bit of a portfolio triage by mitigating any further bleeding. Let stops take your out of any losing trades. Second, let trailing stops keep you in any positions just in case the market turns or somehow they defy gravity if it doesn’t. Obviously, it doesn’t always work but during the last spill, our longs actually made money after all was said and done. Bailing out at the first signs of adversity would have taken us out of winning trades. Yes, sooner or later bailing on everything would have been the right thing to do. 99% of the other time doing this would take your out of your longer-term winners. Let the market make decisions for you. If the market takes you out of a longer-term winner, say “so long and thanks for the all the fish.” It is better to have loved and lost (some open profits) than to never have loved at all. And, if the market takes you of some losing positions, then say “good riddance.” For me, it helps if I use a strong British accent when I say that. Stop the bleeding first, then consider your next move.With that said, first, I’m not seeing many meaningful setups just yet. I would imagine that if the market only has an anemic bounce, we will likely see a plethora of shorts. If the market comes back with a vengeance, we’ll likely see some potential longs. Take things on a setup by setup basis. And, once you find a good setup, make sure you wait for an entry. The good news is that waiting for entries has kept us out of any new positions for nearly a month. As usual, take things one day at a time (by this time you thought I’d write my first ever column without saying that).

Futures are strong pre-market.

Best of luck with your trading today!

Dave