Bide Your Time

Random Thoughts

One of my big concerns has been what will happen when, not if, the defensive issues that have been holding up this market correct. And, we did get a little taste of that last week.

Let’s look at these defensive issues:

Energy has lost momentum as of late. If you drill a little deeper, you’ll see some debacle de jours here and a few shorts setting up.

Foods remain in a solid uptrend and are just shy of new highs. However, when you dig within the sector you’ll find some mixed performance here too.

Utilities, especially the Electrics, got hit hard on Monday.

In spite of internal weakness within the Defensive issues (and external for that matter in the Utilities), the market ended higher. Other areas rallied to support the indices. Banks bounced. The Transports drove to new highs. And, technology had a solid day. As long as this happens—some areas correct while others rally, the market will hang in there.

It just seems a little fragile to have most of the eggs placed in the defensive issues.

Let’s look at the scoreboard.

The Ps gained a little over 1/3%. They remain stuck in a sideways range but aren’t too far away from all-time highs.

The Quack (Nasdaq) had a decent day, gaining nearly 1%. It remains in a downtrend but has become very choppy and sideways as of late. Like the Ps, we might have to start drawing sideways arrows here too.

Although the Rusty (IWM) is becoming choppy too, it remains the poster child for this market. It seems that most stocks—at least more tradable ones—remain in downtrends. As mentioned recently, a big picture top appears to remain in place here.

As I’ve been whining (I know I’m sick of hearing myself), things have been deteriorating lately at a slow rate. Then, you get a “what, me worry?” day like Monday. It just seems to prolong the inevitable.

You know the routine. Take things one day at a time. Don’t make any drastic changes. Look for clues. Monday was a good day. Follow through is key. A bull market is a string of good days. A bear market is string of bad days. Duh!

So what do we do? Not much has changed. When things are good you can’t wait to wake up to see how much money you made overnight. This is not one of those markets (another duh!). Again, it hasn’t been easy lately. The good news is, if you willing to bide your time things will improve. The market will eventually go mostly in one direction or the other. Said alternatively, it will trend again. As I’ve been preaching in my weekly webinars, times like these are what separates the men from the boys. Avoiding performance anxiety and resisting the urge to try to make something happen is tough. “Don’t invent trades” (Peter Mauthe). This isn’t a market where you want to take any drastic action. Continue to let things unfold, setup by setup. Regardless of what you do, make sure you wait for entries. Thanks to this, we haven’t had many positions trigger as of late. This might be the market saying that best action might be no action. And, of course, if you do get triggered in, honor your stops just in case. He who fights and runs away lives to fight another day.

Best luck with your trading today!

Dave