Random Thoughts
“Opportunity is missed by most people because it is dressed in overalls and looks like work.”
Thomas Edison
The Daily Grind: Why I Know More About What’s Really Happening In The Markets Than Most (and so can you!)
Sorry for the tease but there’s nothing magical about what I do. I just work. And, if you’re not afraid of a little hard work, read further.
I look at two to three thousand charts every night. I start by looking at nearly all the stocks in my tradable universe (those with volume greater than 250k on average). This tells me what’s really happening. If there are a lot of momentum stocks making new highs then I know that the market is healthy. If the new highs are made up of defensive stocks or worst, a handful of bond ETFs then I know things might not be so good. If most stocks are headed higher, the market is likely okay. Conversely, if most stocks are headed lower, then I know that internally, things are deteriorating. And, if things are just bouncing back and forth, I know that maybe the market is just choppy. After looking at all those stocks, I then look at many of them again. I run a very primitive “pullback” scan on my entire database. This simply shows me stocks that have made recent 20-day highs or lows. This can produce a thousand stocks or more.
If there’s a plethora of setups on the long side, then I know that I want to be a buyer. If there’s a plethora of setups on the sell side, then I know that I want to be shorting. And, if I can’t find a setup to save my life, maybe I should just sit on my hands.
Yes, it’s a lot of work, but for me, it’s like being on a treasure hunt. Shortly after the close I grab a big cup of coffee and start digging.
Keep Some Oil In Your Lamp
Markets don’t care about your schedule. I’d love a vacation without a laptop chained to my waist but that “ain’t gonna happen.” This drives my wife nuts (don’t worry, I’m not stupid enough to say the “short trip” joke). You never know when the next big opportunities will come along. And, when they do, you better be ready. This means continuing the daily treasure hunt, rain or shine. A client recently told me that he was debating renewing his subscription because he missed the recent run and “did not see any setups for the foreseeable future.” Well, quite frankly, neither did I but literally the next day I found myself working late because there were so many good looking setups-even some potential buys-believe it or not-to choose from.
The Secret To Trading
It’s not a good idea to “time” a methodology. You want to know the secret to trading? Find a viable methodology, any viable methodology, and stick to it. I see people who remain perpetually out of phase for years because they chase rainbows instead of just sticking with one thing. They’re short-sighted, constantly attending the “church of what’s happening now” vs. just being consistent and patient. Provided that you do have a viable methodology in the first place (for me, it’s just simple trend following), then you have to stay with it long enough to reap the fruits of your labor. Rather than go any further into this diatribe, watch Thursday’s Dave Landry’s The Week In Charts-African Queen Syndrome for a lot more on this.
These Are The Ones That We Have Been Waiting For
Below is the actual current portfolio (as of last night). In spite of the world appearing to be coming to the end, we’ve found some pretty decent setups so far in 2016 (and late 2015). It doesn’t always look this great. However, by doing my homework daily and believing in what I see and not in what I believe, occasionally it does—even in these treacherous times.
To The Markets
The three amigos that I pay the most attention to: the Quack (Nasdaq), the Ps (S&P 500), and the Rusty (IWM) are all around multi-year lows. As I have been preaching, this has those who “invested” in the market over the past couple of years questioning their investment. It also has likely woken up those who have been drinking the buy and hold KoolAid since 2009 (a new crop comes along every bull market). Yes, Virginia, markets go up and markets go down. Don’t believe me? Just watch.
In the sectors, ugh! Most, like the market itself, remaining in bona fide downtrends. Those which have been hanging in there on a relative strength basis as REITS and Retail are now beginning to break down.
It seems that each day brings yet another debacle de jour. Yesterday was Aerospace/Defense’s turn in the barrel.
As I’ve preached ad nauseam, when the big cap stocks that have been propping up the major indices begin to go, so will the market. Some have begun to deteriorate and I have quite a few on the radar for today as the next likely victims.
It often becomes a case of the bigger they are, the harder they fall. This is why larger cap stocks are now showing up on the radar as potential shorts. The problem is that you can’t live off relative strength. If the ship’s sinking, then eventually all the rats drown. I explained this further in my “How Rats Leave A Sinking Ship Column.”
So What Do We Do?
The market is oversold and due to bounce. However, that in and of itself isn’t reason enough to buy. As I preach, it’s often darkest right before it gets more dark. Yes, brace for a bounce, honor your stops on existing shorts but stay the course. Again, I’m seeing short side setups in some the last of the Mohicans (big cap issues). So keep an eye on these “name brand” stocks for opportunities. On the long side, I’m seeing some setups in the Metals & Mining. At this juncture, I wouldn’t buy anything unless it has the potential to trade contra to the overall market (as commodities occasionally can). The best advice that I could give you is to keep doing your homework and soon you too will be pulling the rabbit out of the hat.
May the trend be with you!
Dave