Channeling Yogi (and a Chicken Little Update)

Source: Wikipedia Original Source: Baseball Digest

Source: Wikipedia
Original Source: Baseball Digest

Random Thoughts

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Next update Monday, April 27th.

You have to follow your plan and not get too caught up in the minutia. Last Friday, I was speaking at the American Association Of Professional Technical Analysts (AAPTA) annual conference. I was showing how I had China stocks in my Landry 100 (a momentum list that I track) and the fact that we were long JMEI in our model portfolio (see below). Someone interrupted me to ask “Did you see what happened to China overnight?” No, I replied. “Well, it got hit over 5%!” I begin thinking, oh no, what’s happening to JMEI? Should I continue my speech or grab my laptop and fire up my charts? I decided to forge ahead.

When I was done, I quickly grabbed my laptop and yes, China basis the FXI was certainly down but not nearly as bad as it was. Further, the stock that I was concerned about for me and my peeps was actually trading higher. I wasted all that mental energy worrying about something that didn’t even happen. Okay Big Dave, what if it did? So what. That’s what stops are for. Plan your trade and trade your plan. In this case, we have already taken partial profits and, barring overnight gaps, the worst we could do on the remainder of the position is breakeven. So, we’re only giving up open profits.

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Speaking of giving up open profits, I spent some time in yesterday’s Week In Charts discussing the fact that sometimes you have to be willing to lose to win. You have to be willing to give up some open profits in order to ride out longer-term trends. Psychologically this can be tough for many. We feel the urge to lock things in before they evaporate. We also often mentally monetize profits, thinking about material things that that money could buy. Again though, you have to be willing to lose to win. Via trailing stops, you hopefully are able to ride out corrections in what turns out to be the mother-of-all-trends. As I preached, if you stop at 50% profits, you’ll never make 100%. And, if you stop at 100%, you’ll never make 200%. And, well, you get the picture. As I said in the chart show, “If you quit 50-yard line, you’ll never hit a homerun” (I think I was channeling Yogi, LOL). A month and hopefully a year or two from now I’m going to pull up yesterday’s example (TRIL) to see how it panned out. If it’s up 1,000% then I’ll have a wonderful “Ya see!.” If it stops out for a 50% gain then I’ll explain that it was better-than-a-poke in the eye. If nothing’s ventured then nothing’s gained.

Now, to the markets.

Just last Friday the Chicken Littles were screaming in the streets that the sky was falling. Fast forward one-week and the market is at/near new highs. Freak out early and often I suppose. Seriously, just follow the plan. It IS that simple. I never said it was easy. Yes, some day the trend will end but until then, it is your friend. I guess I’m channeling Dr. Seuss today too.

The Ps (S&P 500) had an okay day, closing up ¼%–better than a stick in the butt. This action has them a gnat’s eyelash away from all-time highs.

The Rusty (IWM) tacked on nearly ½%. It too is just shy of all-time highs.

The Quack (Nasdaq) closed up well over 1/3%. For those keeping score, this is an all-time closing high.

As you would imagine, most sectors are looking pretty darn good.

Retail, which had been looking dubious, is trying to rally back to its old highs.

Telecom, which had been wide-and-loose, has worked its way higher to close at multi-month highs.

Ditto for the Banks.

The Energies still look fantastic. So far, the mother of all bottoms remains in place here. I’m think they have the potential to at least double from these levels—write that down. And if they don’t, so what. We’ll get stopped for a small gain. You gotta have some skin in to win.

Ditto for the second tier China stocks (e.g. the aforementioned JMEI) and Latin America (EWZ).

The same is true for Steel & Iron.

As you would imagine, many sectors are now at or near new highs-like the indices themselves. Selected Financials, Health Services, Drugs, Software, Internet… I can go on and on but I don’t want to bore you. Too late?

So what do we do? Since the market is at new highs, I’m not seeing setups (pullbacks) in the stronger areas. I am seeing wonderful potential opportunities in the aforementioned emerging trend areas. You guys did an EXCELLENT job yesterday picking stocks. Watch the webinar (below) for some of my favorites. As usual, pick the best and leave the rest, wait for entries, and use stops once triggered.

Best of luck with your trading today!

Dave