Some have mistaken my take things one-day-at-a-time mantra for following too much noise, chasing my own tail if you will. Taking things one day at a time does not mean making drastic decisions every day.
I do not sell my shorts just because the market is making new highs. I follow my plan. Conversely, I do not exit my longs when things are looking a little iffy. I follow my plan.
If the market is consistently making new highs, day after day, I look to add on the long side. If the market is consistently making new lows, I look to add on the short side. And, if the market is going mostly sideways, I sit on my hands.
Considering the above, let’s look at the market.
The Ps (S&P 500) sold off fairly hard, losing over 3/4% on the day. This action is a bummer because it puts them right back into the middle of its range after just recently tagging all-time highs. Net net, the index is a wash for the last month.
The Quack (Nasdaq) sold off even harder, losing over 1% on the day. This action also scores as a bummer since it too just recently tagged new highs (14-year highs here). It has it down towards the bottom of its trading range. Furthermore, it is now not too far above its August breakout levels. It is very important for these levels to hold, circa 4475.
The Rusty (IWM) continues to be taken out to the woodshed and beaten. It lost nearly 1 ½%. It has been trading like an electrocardiogram throughout 2014. If you’re not having your best year ever trading small cap momentum stocks, then look no further than the Rusty, it is down well over 2 ½ % so far this year.
As you would expect, the sector action is less than stellar. Many, like the Ps and Quack, are stalling out after just tagging (or approaching) new highs. These include, but not limited to, Chemicals, Hardware, Semis, Insurance, Health Services, and Drugs. It’ll be important to watch to see if they are just pulling back or if this could be the start of something bigger.
Speaking of the start of something bigger, Energies continued to slide out of a First Thrust. Ditto for Real Estate (REITS). See recent columns and last week’s Dave Landry’s The Week In Charts (watch for free on YouTube).
Metals and Mining continue to implode. And, once again, Gold continues to hit new lows. This, in spite of, Isis, plagues, wars, and Kris Jenner filing for divorce.
So what do we do? It never ceases to amaze me how something as simple as analyzing a “net net” change in price can keep you out of new trades. Always look at a market and ask yourself, where was it a week ago?, a month ago?, and so forth. As trend traders, that simple technique can keep you out of trouble. Again, on a “net net” basis the Ps and Quack haven’t made any forward progress in a month. The Rusty has lost ground. This action suggests that we should wait for things to unfold. Doing nothing (new) is hard, especially for successful people that took action in their lives to become successful. Sometimes though, it’s the right thing to do. The good news is that I’m not seeing many setups. Usually, this is the database telling me to hold off for now. Do honor your stops on existing longs just in case. Do take partial profits as offered if you took recent short side setups in the Energies.
Best of luck with your trading today!