How To Avoid Painting Yourself Into A Corner

Random Thoughts

The trend appeared to be rolling over so we positioned accordingly. The market begin to implode, losing 8% quickly. However, it then decided to turn on a dime and go straight back up. Based on this action some positions worked and some didn’t. Money and position management helped so save our arse.

Now’s the tricky part. They inner trend guy in me is saying that new highs are a good thing and that I should be jumping in with both feet. The common sense reasoning part of me is thinking that the indices still remain overbought. And, although overbought can always become more overbought, it is a dangerous time to buy a market. The wedging action in the Ps (S&P 500) also has me concerned. Ideally, markets should blast higher and then correct buy pulling back—rinse and repeat. A slow upward drift suggests that buying has exhausted itself.

The above has me thinking but not predicting a couple of scenarios. If the market can continue to hit new highs, then fear of missing out—FOMO–could begin to show up. If your benchmark is going up, you better jump on board soon, otherwise, you’re not going to beat it. The other scenario would be if the market does correct in earnest then it would then come back below its multiple peak(s). This would have it unchanged on a net net basis for months and would put pressure the other way. Well, since I have up and down covered, I might as well through the third arrow into the mix, sideways.

When things aren’t cut and dry, it is good to develop a few “what ifs” so when the market does one of them you’re not completely surprised. You then take the appropriate action. There are times when predicting is easy. If the market is in a solid trend and has corrected, I know that it is likely to resume that trend. Right not isn’t one of those easy times so I’m staying flexible. I think if you get stuck into a rigid prediction in this market, you could easily find that you’ve painted yourself into a corner—thinking, now what?

If the market does keep on making new highs then as a trend guy, I won’t fight it. If it drops below the prior peaks, then I will begin paying attention to possible trend transitional patterns (Bowties, First Thrusts, etc… see Education on my website or my Youtube channel. I am also doing a webinar on Bowties for Trader Inspiration on Tuesday, November 11th. Click here to participate.).

Here’s the good news, and it has nothing to do with me saving money on my insurance: You don’t have to get the market exactly right. In fact, as I preach, predicting the overall market is often much tougher then predicting individual issues. I’m not talking about predicting all issues all of the time. What I’m saying is that it’s easier to sift through a couple thousand stocks looking for the right opportunity than it is to predict the overall market.

If the database is producing a plethora of buys, they you buy. Conversely, if it is producing a plethora of sells then you short. And, if it’s not producing much, then you wait. If you get hungry, eat something…get tired, pull over (Google it).

So what is it saying now? It’s not producing much. I have one or two IPOs that I’ll be watching today but that’s about it. Therefore, for the most part, it’s saying to let things shake out. I’m completely fine with that. If we encounter the mother-of-all bull legs then I know that there will be plenty enough time to climb aboard. In the meantime, waiting a few days or even weeks “ain’t gonna kill me.”

Best of luck with your trading today!

Dave

P.S. Chart show today! Be there or be square—unless of course you’re off saving lives, building buildings, or doing other great things. Otherwise, call in sick. Click here to participate.