You do what you do, I do what I do. As long as you have a strategy, execute with discipline and stay true to your rules, I applaud you. If your strategy calls for you to be long and strong here I do not desire to influence your read. My read and position is not opinion but rather my rules, which are sometimes wrong. As much as I have enjoyed watching the recent ramp off lows the larger picture still looks bearish to me with 7 months of overhead supply straight ahead. The drop was intense and the recent pop, especially today, oozes of late shorts being squeezed and anxious bulls feeling left behind. I want to be bullish and go long stocks enjoying the ride and toasting the gains but I cannot. The bounce is allowing me to redeploy shorts. Right or wrong this is what my strategy tells me to do so I am following it.Read More
As I write the NAZ is up 84 handles and above yesterday’s high. If you covered into the little towel trade we saw yesterday, like me, you’re probably tempted to re-enter the short side here licking your chops over today’s gap. Stay away!
Maybe you’ve been in cash waiting for an opportunity to get long. Knowing full well this could retrace quite a bit before becoming over bought you’re tempted to press some longs and squeeze the shorts. Avoid it!
The market is bouncing and may very well continue higher over the next few sessions. Quite possibly, maybe the complete reversal is Apple is an indication of things to come and we abruptly head lower to start October. The point is, there is no fat pitch here and therefore nothing to do. Here’s how I see it playing out where a fat pitch may set up.
Let’s say we keep squeezing higher. The NAZ broke a decent trend line this week and a kiss of that line wouldn’t be out of the question. When it comes to the key weekly moving averages an oversold bounce could take us back to the 4800 level. It would be at this point I would start averaging back into the short side looking for, at minimum, a retest of these recent lows. More than likely it would be an incredible setup for even lower prices and I would try desperately to hold onto the trade for some time.
Let’s say we don’t squeeze higher but abruptly reverse and start seeing new lows. The short trade would have been missed but that’s ok because a much bigger oversold bounce play would be emerging. My objective at this point would be to play this bounce using index ETFs, slowly edging into the long side while the market penetrates recent lows and we see individual stocks be thrown out with the bathwater. It would be at this point I would be looking to build size in a series of ETFs and anticipate a bounce. When it comes, poof, gains would be taken!
The point is simple, right here and now I see very little edge. The fat pitch on the short side has come and gone for now and the chop is not something you want to try and game. Sit on the sidelines and wait with cash at the ready. That is the best play right now.
This market is ill and more than likely headed lower. Regardless of your view point on the world, the economy or the ridiculous show Apple put on yesterday, the longer term trend we’ve enjoyed since 2009 is being challenged. It is far too early to know if this will be like 2010 where after a few weeks of pain we have a reversal and move higher to break free of the carnage, but for now capital preservation is the key. If you don’t like shorting or just aren’t very good at it, than now is a time to do nothing. Raise cash and sit and wait however beware of the market siren call and following people who’ve never traded in a downtrend.
Pundits will try and lure you back in by claiming ‘value’ and ‘oversold.’ While the general investor panics, and other pundits take center stage to talk the bear camp, you’re natural desire will be to go counter trend and buy the blood. “It’s too negative” you’ll think as you see prices erode and markets drop.
I’ve fallen into this trap many times. It looks and feels easy. You’re nimble enough to move in when others are puking stock however what you’re doing in reality is trying to catch a falling knife and participate in the next counter trend bounce. On occasion you may enjoy some gains but overall you’ll be beat down psychologically, emotionally and ultimately financially. When the real move finally comes and is sustained with real accumulation you’ll be so skeptical and beaten that you won’t participate.
If you don’t have rules for buying stock and following trends, now’s the time to adopt some. Pick up a copy of @AlphaTrends book or start following Dave Landry. Both are seasoned traders who’ve seen ups, downs and everything in between. They follow rules not emotions. Don’t be sucked into the increased volatility but rather wait patiently for the storm to pass. It will take time and rules will be your guide!
For those a bit more opportunistic check out the Tape Talks for some short ideas.
Relax a bit and don’t rush back into this, it’s not worth it.Read More