Canaries In A Coal Mine Or Thinking Too Much?

Random Thoughts

The Ps (S&P 500) made all-time highs yesterday. I should be excited as a Trend Following Moron but I’m not. Don’t get me wrong, I’m glad the market is making new highs, there just seem to be a few caveats attached.

First, there were a considerable amount of stocks that got torpedoed. This was especially true in the recently hottest area in hot town, Biotech. On the surface they appear to only be pulling back. However, when you dig a little deeper you see that some were hit especially hard. Is this a shot across the bow? Is it just a pullback or is the bloom off the rose?

Second, the market remains overbought. You can use whatever dynamic you want to measure it: oscillators, historical references, or just do what I do, eyeball it. A market can’t go up nearly 11% every 12 days. Obviously, those type of moves aren’t sustainable longer-term.

Third, we haven’t cleared the September peak decisively just yet. And, we really haven’t taken out the July peak with vigor for that matter.

Forth, upside bias reasoning is beginning to creep in. This is the hardest of all to quantify, especially since I ignore all news and media. However, I do get a little though osmosis. I saw some headlines that the market rally is based on the Republican win. I also received an email yesterday explaining to me upside seasonal biases (I get a few of these every November).

Fifth, well, I forgot what fifth is, but Six: The market has lost a little steam as of late. The Ps are up just over ¼% in the last 3-days which is better than a poke-in-the-eye but is nowhere near the recent melt up that we have recently seen. The Quack (Nasdaq) and Rusty (IWM) are actually down over that period. Now, let’s not get too caught up in the micro, I’m just pointing out the fact that the market has lost a little bit of steam.

Whoa, Chief Orman, sounds like you’re getting a little bearish. Don’t worry. I’m going to stick with my mantra of “believe in what I see and not in what I believe.” I want it to go up and to keep going up for a long time. That makes my job and life much easier. I’m just seeing a few canaries in the coal mind-just a few.

The great thing is when you embrace and follow a system, you don’t have to think too much. Thinking random thoughts out loud makes for great columns (at least that’s what I hope, I guess by now you might have to exercise caution should you operate any heavy machinery later today—I would say who I stole that line from but he told me to stop mentioning his name in the same column that I use the word moron). Anyway, I digress. When you are a trend follower, you will always be a little late to the party. Although there are times when you can be fairly timely—for instance, yesterday I got asked when exactly did I start buying in 2009? We actually starting getting signals around April, not too long after the March bottom—and not too shabby I might add (download and study the service archives when you have time). Study all the Bowtie and First Thrust patterns from back then (and at every market turn for that matter). Where was I? Oh, not thinking. Since the methodology requires a pullback, I am still not seeing that many meaningful setups. So, I will continue to wait. Each day brings a new clue. If I see more things to be concerned about tomorrow, then I will become more concerned. The bottom line is that when I start seeing setups, I will start taking them.

So what do we do? Nothing has changed just yet. Manage your existing positions. Wait for new ones.

Best of luck with your trading today!

Dave

P.S. Chart show today! I’m going to flesh all of the above out in detail plus a lot more stuff. Stop by if you’re not too busy saving lives, building buildings, or repairing automatic transmissions.