Get On The Bus (or the next one)

Random Thoughts

Stocks are like a bus. A new one will come along soon. This is why I look at over 2,000 stocks nightly. I look for the ones that will provide big opportunities and ignore the rest. This is framed within the context of the overall market and representative sector.

Pick the best and leave the rest. First and foremost, look for existing or emerging trends. You then look for a place to climb aboard. The personality of a stock is key. If it tends to go up day after day, then ideally that behavior continues once you put your hard earned cash in harm’s way. If the stock looks like an electrocardiogram then you really have to ask yourself: Is this stock is going to stop behaving erratically just because I took a position? Unfortunately, once we do take a position, the stock doesn’t really care about you, me, or that guy that screams on TV.

Stocks are a trading vehicle, period. You buy them to make money. Quoting Will, “Buy stocks that go up. If they don’t go up, don’t buy them.” Although trading is an active verb, this doesn’t mean that you have to be in and out like a mad man. When people ask me my average holding time, I reply “At least 10-years—hopefully longer.” Trading means that stocks can stay as long as they behave. It’s not rocket surgery. Provided that you’re giving the stock enough room to begin with, then all you have to do is honor your stop. If you’re stopped out, then shout NEXT! (I like to do this in a proper British accent) If not, then don’t be Frozen, just “let it go!” Money management is key. I preach that often. However, never forget that your best defense is a good offense. If you’re in the best stocks to begin with, following your plan becomes much easier.

Okay Chief Orman, why are you on this rant? Well, lately I have been asked to opine on quite a few “electrocardiograms.” This dovetails in with my last commentary about not doing the right thing and knowing that you’re not doing the right thing. Request the article here on Doing The Right Thing and it will be delivered shortly. If you look at the chart and hear beep beep beep then it’s probably not a stock you want to be trading. Even if you’re newer to reading the charts, at the least study the net net change. Where was it a week ago?, a month ago? and so forth. If it hasn’t changed over those periods, then it probably won’t change just because you buy it.

Let’s get to the markets. Tuesday scores as a bit of a bummer. The indices tried to rally but came back in. Everybody and their brother had to buy on Monday. I guess that left no one to buy on Tuesday.

The Ps (S&P 500) ended slightly lower after probing higher. This action keeps them stuck in a sideways range that goes all the way back to last fall.

The Quack (Nasdaq) also ended lower after probing higher. So far, it remains above its prior breakout levels, circa 4800. Unfortunately, it hasn’t done much on a net net basis in quite a while.

The Rusty (IWM) tried to rally a bit but reversed to close down well over ½%. This is a bummer since it has it stalling just shy of all-time highs. It is starting to look a little toppy. Don’t worry, as long as it remains within a percent or two away from all-time highs, I won’t go all Chicken Little on ya.

Things are getting a little mixed out there. Some sectors in longer-term uptrends like Retail are losing steam. Ditto for Drugs and Biotech—although they did end up in the plus column on Tuesday but well off their best levels.

Real Estate got whacked. I’m not a big fan of trading these lower beta stocks but I do watch everything.

Metals & Mining still appear to be in the process of bottoming. Notice I used the word “process.” Continue to wait patiently here and resist the temptation to bottom fish.

In the good news department, the Energies continue to wake up. I suppose this is no big shocker when the underlying commodity (basis the USO) is up nearly 20 percent in less than a month. We are long TGA in the Core model portfolio. Come to the next chart show and I’ll show you why we are long and what other positions we have taken. Keep an eye out for setups in this sector. These stocks have been battered—and fried. Now, I’m not looking for opportunities here because they have been beaten up. I’m looking for opportunities here because a new trend appears to be emerging. And, yes, coming from a value zone doesn’t hurt. Looks like I’ll be discussing emerging trend patterns such as Bowties in the next chart show. Be there are be square—unless of course, you’re busy saving lives, building buildings, repairing automatic transmissions, or doing other great things.

For the most part, again, it’s getting really mixed out there. It truly is a stock picker’s market. At the risk of preaching—I know, too late—pick your spots carefully, especially as long as the big blue arrow is pointing sideways in the indices.

So what do we do? I like the aforementioned Energies. I’m also keeping an eye out for possible opportunities in the metals-soon. China has really be on fire lately too. I have a setup or two on my radar there. For the most part, there’s not a tremendous amount to do at this juncture—other than honor your stops and wait for setups & entries.

Best of luck with your trading today!

Dave