It’s a Chop Fest

There is no question in my mind that traders are getting chopped to pieces in this tape. One minute it looks as if the sky is falling and the next it look as if all is right with the world. On one hand Goldman Sachs (GS) is posting an outside day on an uptick in volume while Bank of America (BAC) is just trying to find its way off the death bed. As I write the Q’s are notching higher by 30bps while the breadth is flat ahead of the Fruit’s earnings after the bell. Garbage stocks like Dryships (DRYS) and Canadian Solar (CSIQ) are looking ripe for a day trader while Steel is ripping the heads off the Bears.

When it’s all said and done the S&P 500 is in the same spot it was just 10 sessions ago, and 6 sessions before that and 13 sessions before that and 5 sessions before that and while we’re at it let’s just sum it by saying we’re in the same spot we’ve been in since last Fall. Sure, we’ve moved to and fro since then and some incredible pops and drops have been seen but at least since our flash crash lows this market hasn’t had a thing.

Yet traders continue to jockey back and forth, mesmerized by the daily ticks and the pieces of news which seem to send this market higher or lower on a whim.

I too have succumbed to the madness albeit for a very short time period. Last week I got discouraged waiting for the mining trade to play out. I had positioned myself short many gold miners and was watching the back and forth while knowing full well that before the move transpired these little guys would shake out as many shorts as possible and suck in as many bugs as possible before their ultimate demise. Despite knowing this, I too got shaken out and rather than wait for a better entry I went fishing in the dumpsters looking for longs. There too I found frustration and was once again led back to the sidelines to wait.

It then hit me. It hit me like a ton of bricks that this market is setting the stage for a remarkable move. A move that should rival any we’ve seen several months if not the last few years. However before this move begins, the market wants to discourage as many traders as possible separating them from both their financial and emotional capital.

From where I sit, I see the next move as being down but from what level I do not know. What nags at me is the amount of people looking for the same move to transpire so it makes sense that the market is trying to shake out these believers through many harsh rips higher and false breaks lower.

My read is simple it is the underlying charts under the surface which so are saying nothing to suggest any sustained rally higher. Only garbage stocks seem to be setting up and dumpster diving is not for me. The S&P remains under its 50 week moving average and has notched a series of lower lows and lower highs. I will patiently await the drop and work very hard not to get discouraged or chopped up in the mean time.

Regardless of your view, you would do well to step back. Take a breather and if you must play, play so very small that the continuous nicks you are sure to be faced with, do not add up to a major flesh wound.

When the real move begins, it will be met with such an incredible amount of disbelief you will know that it is real. While others mentally and financially fight the move, you will be ready to capitalize to your full potential.

In summary, this tape is a chop fest. Stay on the sidelines and let all the other traders duke it out. When you know what side will win, jump on board for the bigger ride.