The Reverend Of Trend Following

Random Thoughts

It’s funny. Every time I get a little cautious about the markets I start receiving emails about how I’m always bearish, a permi-bear if you will. They go on to cite that the market has generally gone up since 2009. And, it has. Like Pinocchio being a bad motivational speaker, everyone knows that. Since ’09, I have bought and I have recommended buying a lot of stocks. I guess people want eternal sunshine. If you go to my Trading Service marketing page in my store, you can get free access to the archives to the last 10 years of my service which includes my daily “Landry List”—my personal watchlist (newer ones are behind the firewall but you get the idea). You’ll see that over the years I have shown a lot of longs and occasionally a short or two (or three in 2008).

Markets go up and markets go down. In the late 90s, I was the most bullish guy in bullish guy town. This is how I got the not-so-affectionate-at-the-time nickname “Trend Following Moron.” It stuck. Since then I have gotten buttons, T-shirts, and hats made. Speaking of stuck, they went on to tell me where to stick my arrows. This inspired me to stick it back in their face by incorporating my arrows into website logo. I also put arrows on the back of my business card (send a SASE stamped envelope to Sentive Trading, LLC C/O Dave Landry P.O. Box 298 Abita Springs, LA 70420 if you would like one to help you find your way in the markets). So, I’m literally a card carrying member of the union of trend following morons. I am also founder and lead pastor of thechuchoftrendfollowing.com. And, the above has inspired me to name my brand new video production company bigbluearrowproductions.com (my original paint program defaulted to blue so I became known as the blue arrow guy). I also own whybuyandholddoesnotwork.com. I can go on and on—I own a half dozen more trend related domains including trenfollowingmoron.com–but I’m sure by now you get the point. I’m a trend guy.

Considering the above, it should be obvious that I am a firm believer in the fact that the trend is your friend. This is true of course, until it ends. Trend transitions or emerging trends are tricky. Every potential transition has the possibility to turn into the mother-of-all tops/bottoms. Unfortunately, as I preach, sometimes, what appears to be a turn in trend might just be a correction in a longer-term trend. When you’re trading a transition, as I wrote in The Layman’s Guide To Trading Stocks, like the American Pioneers you’re either going to get the gold or you are going to get arrows in your back—no pun intended.

When I get tired, I sleep. When I get hungry, I eat something. And, when I have a sell signal I take it. Recently we had a Bowtie down after the market made double tops. Not every signal will turn into the mother of all tops but all tops will have signals. Admittedly, since ’09, sell signals have not panned out very well. Yes, we picked up a few nickels here and there but for the most part, it has not be worth it.

Is this time different? I don’t know. I took the signals in individual stocks in the model portfolio, I have 2 shorts working. So far, so good. Both are profitable and one has hit the initial profit target. We also recently got stopped out of a one for a better-than-a-poke-in-the-eye trade (initial profit target then a scratch). The leftover long is bouncing between red and black. See last week’s chart show on Youtube for a portfolio snapshot.

What is my point? Do I have one? Where does that highway lead to? Yes, I have one, I follow the trend. Sometimes when the trend appears to be turning, I take the signals. I call ‘em as I see ‘em. Whipsaws are part of this business. I have the scars to prove it.

Speaking of calling ‘em as I see ‘em, I look at a lot of charts daily, literally thousands. And, so far, it looks like most stocks are still headed lower. Now, keep in mind, follow is the key word in the
phrase trend following. If I get stopped, so be it. I know I can’t catch every zig and zag and, again,  whipsaws will happen. Longer-term though, I know I will be on the right side of the trend.

So what do we do? Well the market is very overbought. It has pretty much gone straight up for the last week or so. This doesn’t mean that it can’t keep going higher but I think it is way too dangerous to buy at this juncture. Besides, I am not seeing any long side setups and I still have just shy of a plethora of setups on the short side. Listening to my database tells me what to do. Entries tell me when to do it. And, stops/trailing stops keep me in or get me out. Follow your system.

Best of luck with your trading on Monday!

Dave