Digging in the Trash

Digging in the Trash

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I like the action I am seeing in the metal area. I’ve already been a buyer of the GDX in client portfolios for a longer term asset allocation play. Now I’m looking for trading opportunities and have started a position in First Majestic Silver (AG). The stock is in the trash and has little to know technical appeal. If these stocks gain any traction at all the pile-on impact should be big.

AG

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FSLR for the win

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While my general view on the market has been articulated well in previous posts, I wanted to bring one potential trend break to your attention which may provide some unique upside in a bearish tape. Despite oil trading at depression-like levels, solar stocks are getting some love after the recent climate change conference. After a multi-year downtrend, accumulation has started once again in the once-loved First Solar. In full disclosure I already have some shares here from last week. I will be adding on any retracement and have a stop on a clear break of the 50/20 week moving averages.

FSLR_12.20.15

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I want to be a bull but….

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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.

10.8_SPY

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Avoid the Temptation

Avoid the Temptation

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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.

 

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