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Random ThoughtsMy wife Marcy will occasionally glance at my column. When recently asked what she thought, she said “You say a lot of the same stuff, over and over.” Initially, I was a little taken back by the constructive criticism but then realized that’s a good thing. It reminds me of the preacher story told by Anthony Robbins.
Paraphrasing: The preacher preached the same sermon week after week. One of the churchgoers mentioned to the reverend that he seemed to be saying the same thing over and over. Good! He said in reply. You’ve heard me. And, I’m going to keep preaching that sermon until everyone gets it.
Reverend Dave Steps Up To The Pulpit
My educational and consulting business has forced me to reduce things down to their utmost essence and keep things simple. This is especially true when working with the private traders. The longer I’m in this business the more I realize that it really is pretty simple. I never said easy but it is not nearly as difficult as many try to make it. Forget about trying to be right and look smart—admittedly, something that was initially very hard for me to do when I started writing about trading way back when the earth was still cooling.
You must look for perfection before going into a trade (there needs to be a course on this and it needs to be on sale now) and accept the outcome of that trade, knowing that you did your best going in. Obsess before going into a trade, not afterwards. Obsess then accept. Plan your trade and trade your plan. Easier said than done but let’s make a pact: You’re going to do this on the next trade. If not, then try again. Once you succeed at one, regardless of the outcome then do this on next 5, 10, 100, and 1,000 thereafter. Do this and get back to me and let me know how you did. You’re welcome. My work is done—dropping my mic rapper style as I step down from the stage.
Dead Money Report
Along the lines of following a plan, way back last September we got into a trade. The plan was to enter at a certain point (1), place a protective stop at a certain point (2), take partial profits at a certain point (3), and then allow the stop to slowly widen with the hopes of it turning into a longer-term trade(4). After (1) and (2), being blessed with a partial profit (3) took a little while but it did finally occur. Many would have given up long before this due to impatience or by the influence of so called “dead money”—thinking that since you didn’t have an immediate profit, your money was dead and you should exit. Following the plan longer-term (4) was even harder. The stock began to meander back and forth. Now, here we are nearly 10-months later and the position is finally beginning to take off in earnest.
There’s no guarantee that the trend will continue but I can assure you that you’ll never catch any trends if you fail to follow the plan by exiting at the first signs of adversity or boredom. True, micromanaging might save you some money on some trades that will eventually fail but it will also keep you from making any real money when they don’t. I know, it’s not easy to do the hard thing but that’s the thing to do.
Speaking Of The Dead
The market reminds me of the not-dead-yet guy in Monty Python’s Holy Grail. Youtube it. Just when things started looking really iffy, the market decides that it wants to “go for a walk.” The market was due for a bounce from oversold but that in and of itself isn’t reason enough to buy.
The Ps (S&P 500) spring boarded off of their 200-day moving average. I can assure you that they won’t always do this but it sure is nice when they do. There’s nothing magical about the 200-or any indicator for that matter-but it can help to keep you on the right side of the market. By simply following the “daylight” between price and the moving average (lows > the moving average) you will generally stay on the right side of the market. There is one caveat. The market has to be trending. As I preach, everything works better with trend. The simplest of the simplest systems will work quite well in trending markets.
Although the Ps have been quite sideways for a considerable amount of time, the longer-term uptrend remains intact as long as the 200-day holds. I’m not saying that it is a line in the sand and the longer-term bull market has ended if we cross below it. My point is to err on the side of the longer-term trend. If, or more accurately, when, it begins trading below the 200 you should then begin to question things even more carefully.
After a serious probe below its 200-day moving average, the Rusty (IWM) came back nicely. So far, it is finding support in this area which also corresponds with longer-term support.
The Quack (Nasdaq) had a decent day, gaining just a smidge under 1%. A few more days like this and it will be out of its range once again. Obviously though, until/unless that happens it remains stuck in a range just like its brethren.
I’m not going to bore you (too late?) and go through all the sectors. See the last column for a recap. In a nutshell, those areas that were looking ugly or in bona fide serious downtrends bounced. A non-exhaustive list includes Energies, the Semis, Conglomerates, Metals & Mining, Manufacturing, and the Transports. No need to be a hero and try to catch a falling knife here. Let ‘em go, let ‘em go (and spend the rest of the day trying to get that Frozen song out of your head). On the upside, Drugs and especially Biotech within came back nicely and look like they have the potential to get back to their old highs. Some others such as Retail, Foods, and Health Services also appear that they want to return to challenge their old highs.
So what do we do?
Well, reverend Dave is not going to change his tune. Pick the best and leave the rest—especially given the fact that this market is “pretty freaking far from okay.” Once you do, wait for an entry, use a stop just in case, take partial profits if blessed with them, and then trail your stop higher. One more point, sometimes the best action is no action. Unless you think you have the mother-of-all setups, then pass.
Best of luck with your trading today!
Dave
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