What-id I Buy?

Random Thoughts

Back in the day when live brokers were more prevalent, I had (RIP) a friend that would place his orders and then often buy whatever stock the broker was touting on that day. He would make fun of himself saying, this is me 3 days later (looking really confused, picking up a pretend phone, and “dialing” his broker): “Now, wait, what-id I buy?”

Many of these touted stocks would have a pop higher but then come right back in. The reality of “What-id I buy?” would set in as the quick gains turned into a loss. Although he didn’t realize it at the time, my friend identified an important aspect of human nature. Markets are emotional.

Monday seemed like a “what-id” kind of day. There was a big rush on the open but that fizzled. In fact, the Ps and Quack made almost perfect Opening Gap Reversals (ORGes). You’re welcome-but I digress.

Monday exemplifies why you should not get too caught up in the euphoria. This is especially true on a news related event. As I said yesterday, you can’t really trade the news but sometimes you can fade the news.

Let’s look at the indices.

The Ps gapped to all-time highs. Wow. Unfortunately, they almost immediately found their high and began to sell off. They still managed to hold on to over ½% for the day so all was not lost.

All was lost in the Quack though. It actually ended in the negative column after gapping to mulit-year highs.

“Summers over.” (See ya Larry!) Big deal. In spite of all of the excitement Monday morning, not much has changed. The Ps still have a big picture “topping” look to them and the minor breakout in the Nasdaq remains intact.

Even though the indices are flirting with new highs, things still remain a little mixed.

Ideally, I’d like to see the market break out and not look back for a while, and then, have an orderly pullback.

With anything less, I remain a little skeptical.

This does not mean that you can’t buy stocks at this juncture. I am just taking things on a setup-by-setup basis. I especially like the stocks such as selected Industrial Metals that can trade contra to the overall market just in case we do not see follow through. Rare Earths (remember my you’ll thank me column?, well, I still have a few months for that to all work out) appear to be waking up once again.

I would be leery of stocks that are in extended trends. This sort of goes against my trend following mantra. My concern with these stocks is that if the market doesn’t follow through, the bigger they are, the harder they could fall. And if the market does follow through, they could become a source of funds. Now, if we get into a rip roaring bull market, then bring ’em on. The stronger the better.

So what do we do? At this juncture (again) you need to take things on a setup-by-setup basis. If you really like a setup, then take it. Just make sure you wait for entries. As mentioned recently, we had one drop for 9 consecutive days before we took it off the radar. Although this didn’t help our bottom line, it certainly didn’t hurt it. As I said in my recent recipe for success column: Avoid some losing trades altogether, mitigate loses when they do occur, and catch a few winners and you’ll do fine longer-term. Continue to take things one day at a time. Don’t get too caught up in the euphoria. You don’t want to be looking at a string of emotional trades and think “what-id I buy?”

Best of luck with your trading today!

Dave