“Come On In! The Water’s Fine!”

dreamstime_xs_36455153Random Thoughts

It’s been said that a market’s job is to fool and frustrate the most-to cause the most pain. It’s also been said that a market will do the obvious in an un-obvious manner (I picked up that from Linda Raschke). For instance, if a market looks like it is obviously rolling over, it will have sharp retrace rallies to make everyone think, “come on in, the water’s fine.”

As I’ve been saying, human nature never changes. Markets go up and markets go down (duh) but when I tell people (not you people, but the laymen) that the market appears to be headed lower they get quite defensive: “It’ll come back.” “The market always goes up longer-term.” Well, it will and it does but you better have a really long time horizon—somewhere between 25 and 81 years (Landry, Layman’s; Morris, “Investing With The Trend”).

I think the sharp retrace rallies that we’ve seen so far are just that-retrace rallies. So, where would the market be “okay?” Well, as I’ve been preaching, I’d have to see new highs in the indices–not just weekly or monthly, but all-time highs. Then, as a trend follower, I’d have no choice than to just follow along. I’m okay with giving up the move between here and there. I’ll let everyone else try to catch every zig and zag.

Bull Or Bear? Answer The Question!

Through my recent writings including “6 Things That You Need To Do In The Upcoming Bear Market”, videos including “How To Survive And Prosper During The Upcoming Bear Market”, and my last bullbearnametagsseveral webinars, I have been cautioning that this could be the big one, Elizabeth (I think that was a title of a column too). Yet, I still have been receiving emails asking me if I’m bullish or bearish. Well, I guess I need to put that into writing (again?). Gun to my head, I’m bearish. Now, that doesn’t mean that I have completely ruled out the long side. I know that in this business, labels are dangerous. That’s why I have been keeping an eye out for potential longs while looking at thousands of stocks, 100s of sectors & ETFs, and several indices nightly. I also been looking at Gold, Bonds, (that reminds me, I need some powder for chaffing), Silver, and the Dollar. BTW, doing your homework, there’s another secret to trading.

Redd Foxx as Fred Sanford, Source: Youtube, original source: NBC

Redd Foxx as Fred Sanford, Source: Youtube, original source: NBC

So, Anything Good?

The market has been propped up lately by commodity based issues (read further). Defensive issues such as Foods, Consumer Non-Durables, and Tobacco have also been rallying. I’m not sure that you can build a bull market on just these areas. In fact, I view the action in the Defensive stocks as an actual negative. Read this column about How Rats Leave A Sinking Ship, written about a year ago. Yes, the ship didn’t sink then (although the market has been under water for some periods here and there since) but when things get iffy, you better have a plan and be willing to bail (i.e. stops) just in case. And, BTW, I think we’re in one of those “just in case” times.

Okay, Big Dave, anything looking good? Well, there isn’t always a bull market somewhere (as I preach). So, you have to be careful with that, and most for that matter, Wall Street adages. The good news is that this time, there is—or, at least there appears to be one developing in the commodities—specifically the Energies and Metals & dipatoe (1)Mining. If you’ve been reading this column (and haven’t killed anyone afterwards through operating heavy machinery—a line stolen from Morris), then you know that I’ve been patiently waiting for these areas to bottom for quite a while. If I only had one secret to trading to reveal, that’s it-patience. You have to resist the temptation to bottom fish and wait for the turn. And, now, we have it. The Energies are up over 19% in just over a week. Ditto for Metals & Mining. I do think it’s time to dip a toe in here. As mentioned recently, we’ve been long the underlying commodity via USO for the Energies for quite some time. And, now’s the time for the representative stocks. Watch for opportunities here and in the Metals. Don’t just buy blindly though. Wait for setups and triggers. If fleshed this all out in detail in yesterday’s Dave Landry’s The Week In Charts. Enjoy:

To The Market

Again, I think what we’ve seen so far has been just a retrace rally. The indices still have a mountain of overhead supply to overcome. Practical technical analysis—and not some mumbo jumbo like price bar counting—is simply reading the mindset of the participants. Anyone who bought the market during the range, will likely be looking to get out at breakeven. Also, anyone who jumped on the eternal money making machine since ’09 and needs some money, will also likely see that as a place to get out. Of course, it’s not a solid wall and the market can do whatever it wants but you have to have a framework to work around. And, it this case, it sure looks like an area of resistance.

So What Do We Do?

On the short side, focus on those areas that have recently rolled over—like Health Services—vs. those areas that are in longer-term downtrends. On the long side, I think commodities are the play right now. Focus on the aforementioned Energies and Metals & Mining. I’m not too excited about the Defensive issues, at least not yet. They tend to be lower in volatility—which makes capturing decent moves more difficult. And, if the SS Sheep Dip sinks, so will they. I like the commodities because they can (and right now are) trading contra to the overall market.  Do be careful blindly jumping in on the long side. The water’s not fine.

Best of luck with your trading today!


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