I’d Bet That This Guy Can Trade

Random Thoughts

When things are going along swimmingly it’s pretty easy to go with the flow. When the tide turns things it get a little tougher. In Friday’s column “So long and thanks for all the fish” I talked about how we may have to say goodbye to some old friends—stocks that appear to be losing momentum in their longer-term trends. The good news is that the tide change has allowed for us to meet some new friends.

Our old friends, Drugs, Biotech, and Health Services are looking a little tired and “toppy.” Although they bounced off the bottom of their ranges they have lost momentum as of late. The Bowtie moving averages are converging here. I wouldn’t rush out and start shorting just yet but do honor your stops just in case. Again, the good news is, as these old trends are ending some new ones are beginning. With that said, the new trend is our friend in areas such as second tier Chinese stocks (i.e. those at lower levels), Brazil, Energy, and Metals & Mining.

In the Metals, Steel & Iron looks poised to resume its emerging trend which began a few weeks back with a Bowtie—poke around education on my website and watch this video for more on Bowties. Copper is banging out new multi-month highs and could set up soon. Gold appears to be trying to turn the corner here but it has been really choppy-so pick your spots carefully.

On the downside, stick a fork in the Dollar (UUP)-it’s done. It has Bowtied down off of multi-year highs.

Bonds basis the TLT appear to have rolled over too.

I wouldn’t rush out and try to use inter-market technical analysis immediately but do pay attention to what’s going on. As I preach, these relationships only matter when they matter. So, watch and wait-don’t anticipate.

Let’s take a look at the indices.

The Ps had a decent day, bouncing back over a percent and change. This action has them less than ½% away from all-time highs. Although they have been treading water since last November, as long as they can stay near new highs continue to err on the buy side. Do be super selective until the indices can get back into solid trends.

The Quack came back nicely too. It is still back into its prior range but a couple of big up days would fix that.

The Rusty was a bit of a disappointment. It bounced but not nearly as much as its two brethren. Unless we see some serious buying—and soon—it could Bowtie down. And, Bowites from all-time highs should not be ignored. Write that down–and study a few 100 over the past several decades. You’re welcome!

Now’s the time to be like water and go with the flow. Paraphrasing Prem Rawat, A market is like a tide; float on it. Go down with it and go up with it, but be detached. Then it is not difficult.

So what do we do? Follow the plan. This means honoring your stops in the established trends that you’ve been riding. Hopefully (a dangerous word in this business), it’ll only turn out to be a healthy correction-knocking out a few but not you. This could clear the way for the market to trade higher. And if it does knock you out, so what. Just say “So long and thanks for all the fish” and then “Next!” I know, easier said than done. I usually toss in and “F-bomb” or three but then quickly move on. It’s okay to get little wet, just don’t get soaked. Hold off on new positions in the previously strong trends until they can show signs of resuming. Continue to look for opportunities in the aforementioned emerging trends. At this juncture, that’s where you’re likely catch the next wave.

Best of luck with your trading today!

Dave

P.S. May the fourth be with you.