The Forest and The Trees

Random Thoughts

The Ps and Quack started strong but they found their highs and began to sell off, losing .51% and .63% respectively.

The selling was pretty much across the board as evidenced by the Rusty (IWM). It lost just over 1%.

Of course, on any sign of a sell off, the bears come out of the woodwork. Me? Well, ideally, I would have preferred if the indices would have cleared their prior peaks decisively—circa 1850 in the Ps, 4250 in the Quack, and 118 in the Rusty (IWM)—before correcting. It’s not the end of the world though. It is just one bad day.

Back the charts way out to see the forest for the trees and you’ll see that the longer-term uptrend remains intact.

Back to the trees, I do like the fact that the volatility had compressed in the indices and that the first expansion was to the downside. Now, don’t get me wrong, I don’t like it in my heavily long portfolio. I like it in the indices since moves from low volatility often have a “fake out” move first. This could actually be healthy for the market.

I guess the bottom line for the “Chicken Littles” is that the sky is not falling. It is one bad day. Trust me, I’ve seen much worse.

As usual, take things one day at a time. Don’t make any drastic decisions.

In the sectors, it wasn’t a big surprise. As you would expect, most ended lower.

So far, the strong ones such as the Semis and Internet only appear to be pulling back.

Uranium got whacked but so far, it too only appears to be pulling back.

Gold and Silver stocks got a bit of a bid yesterday. Longer-term, I still think a bottom remains in place here. Shorter-term they continue to trade mostly sideways.

Retail appears to be losing steam right at its prior peak. It has that “V” shaped recovery problem that I often talk about.

Other areas such as Durables, Non-Durables, and Banks have formed similar patterns.

So what do we do? Again, take things one day at a time. And, take things on a setup by setup basis. If you really like a setup, then take it. Ideally though, the sector and other stocks within that sector should confirm your decision. Honor your stops on existing positions. Wait for entries on new ones. Stop me if you heard that before. The good thing is that these simple techniques will help to mitigate losses when they do occur and keep you out of new trouble should the market not follow through.

Best of luck with your trading today!

Futures are weak pre-market.

Dave