Getting A Headache?, Stop Beating Your Head Against The Wall

Random Thoughts

As I told my peeps on my Trading Service last night, an index can go up in a variety of ways. Obviously, if virtually all stocks are rallying, the index will go up. A weighted index, like the Ps (S&P 500), can go up if enough of the higher capitalization issues rally. And, for the most part, that’s really what’s been propping up the Ps. Most of the higher cap issues keeping the Ps afloat have been defensive in nature-Utilities, Energies, and Foods–the stuff people need regardless of market direction.

My big concern has been what’s going to happen when, not if, the defensive issues being to correct. Again, we saw a little bit of that last week when the Ps slid.

On Monday some of the defensive issues slid but enough other issues bounced from lows to push the Ps (and other indices) higher. As long as enough issues rally, the index will go higher in spite of some areas correcting. In a bull market, this is what’s known as a rolling correction. One by one, sectors correct in an orderly fashion. However, in a bull market, most stocks are rallying and the corrections are healthy—creating pullbacks for us trend followers to climb on board. What we saw on Monday was not a correction but more of a bounce in weaker issues.

Unfortunately, most of the areas that bounced, gave up all of their gains and then some on Tuesday.

This is yet another example of the Chinese water torture market that we’re in. It just seems to be slowly coming unglued. There seems to be just enough hope coming in to keep it all together. The recently mentioned market adage about creating the most pain to the most people comes to mind.

Trading should not be painful. If your methodology is in sync with the market, it should be effortless. It should be so effortless that you’re faced with another problem: controlling your euphoria and keeping your ego in check.

As I have been preaching, this is not one of those markets.

The good news is that you don’t have to suffer. Let things shake out. Make sure what you perceive as a possible opportunity is really worth the risk. Don’t put capital in harm’s way unless you really think it’s going to be worth it. And, if you do, of course, practice proper money and position management if you do.

Let’s look at the scoreboard, the Ps and Quack (Nasdaq) lost well over ½%. The Rusty was the real loser and continues to be the poster child for what’s really going on. It lost over 1 ½%.

So what do we do? I think the aforementioned avoid pain is probably your best course of action. Yes, it looks like things are headed lower but it’s not going to be a rout. And so far, it certainly hasn’t been easy. Trading in this environment is like beating your head against the wall—it feels so good when you stop! So, again, tread lightly and at the risk of beating a dead horse, pick the best, leave the rest, and practice proper money and position management.

Best of luck with your trading today!

Dave