The State Of This Market Depends On Where You Look: The Good, The Bad, And The Ugly

Random Thoughts

It’s funny, when the market begins to come unglued a bit, you begin looking for the good in the bad. The good news is that although the Ps were down just over 1%, they managed to close above Monday’s low, circa 1770.

The Quack ended below Monday’s low but not by much. Still, it did lose over 1% on the day.

The Rusty was hit the hardest, down nearly 1 ½%. While it wasn’t pretty, it too found some support near Monday’s low.

In the good column, the market feels a little sold out in here. The fact that we didn’t take out Monday’s low with vigor suggests that most of the sellers–for this round at least—may be done.

As mentioned yesterday, it will be the nature of this bounce from oversold that will be important.

If it is anemic and the market rolls back over, then that would be cause for concern.

If the retrace turns into new highs, then we can all breathe a collective sigh of relief.

Now is the time to brush up on your transitional (early new trend) patterns. Poke around my website under free education and come to the free chart show later today. If you can afford to trade, then you can afford to get educated so get a copy of Layman’s if you haven’t already done so. The flash drives are a darn good bang for the buck if I say so myself.

There’s not much good when it comes to the sectors. The Gold stocks appear to be making a major transition off of decade plus lows. Be warned though, this is not going to be a fun straight ride up like we just enjoyed in the Biotechs. It’ll likely be choppy. Speaking of Biotechs, so far, they have only pulled back in their strong uptrends. Unfortunately though, a lot of individual issues have been getting hit hard here recently so they might be priced for perfection. Given the nature of the market, you might want to go for the Gold instead.

Back to the bad and ugly: Many sectors have formed First Thrusts down from all-time highs and are on the cusp of forming Bowties. These include, but not limited to, Insurance, Chemicals, Banking, Manufacturing, and Leisure.

Recently weak areas such as Retail and Consumer Non-Durables continue to slide out of Bowties.

Heck, the Ps themselves are on the cusp of forming a Bowtie down.

About the only good here is that the weekly chart still looks constructive. Be warned though, the daily will turn long before the weekly—especially on the short side.

So what do we do? Not too much has changed. There’s a dilemma when it comes to oversold markets. If you try to buy them for the bounce, the bounce never materializes-oversold becomes even more oversold. If you try to anticipate the next leg down, they bounce from oversold—darned if you do and darned if you don’t. For the most part, my thinking here is to continue to let things shake out a bit. The danger outweighs the potential opportunity. If the market goes straight back up, then I’ll start buying again (outside of Gold). If the slide continues, then I’ll add more and more on the short side. Continue to play things one-day-at-a-time and avoid any big picture bets at this juncture. And, continue to let the ebb and flow prune and adjust your portfolio. This has taken us out of some Biotech at a gain and put us in some Gold. Regardless of what you do, just make sure you have picked what you think is a really good setup. If the setup(s) is so good that you just can’t walk away and be okay, then take it. A good offense sometimes can be your best defense. We have 2 potential Gold longs coming into today and 1 potential short in Insurance. My point is, be picky and don’t make any big picture predictions. Take things one setup at a time. Being picky, honoring your stops, and waiting for entries will have the market adjust your portfolio for you.

Futures are firm pre-market.

Best of luck with your trading today!

Dave