Wednesday was another one of those “everything’s fine, come on in” kind of days.
Everything is not fine though. Using the stocks I’m most likely to trade—Historical Volatility > 30 and 30-day average volume > 250k—only 22.4% are in uptrend proper order as defined by the Bowtie Moving Averages (10SMA>20EMA>30EMA). This is down 1% from last week. On the flip side, 64.4% of these stocks as defined by downtrend proper order (10SMA<20EMA<30EMA). This is up 2.2% from last week. So, based on this metric, fewer stocks are going up and more stocks are going down. See my Youtube channel for more on creating your tradable universe and Bowties or come to the chart show later today and I’ll walk you through it.
Let’s look at the scoreboard.
The Ps (S&P500) gained .81%. This action has them near the top of their trading range and not too far from all-time highs. Stop me if we’ve been here before. Unfortunately, on a net net basis, the index hasn’t made any forward progress in well over 2 months. The big (well, medium) blue arrow points sideways here.
The Quack (Nasdaq) gained .85%. It remains in a choppy downtrend. However, the medium blue arrow is starting to point sideways here.
The Rusty (IWM) gained just over ½%. It seems that lately it has been making 1 step forward and two steps backward as it chops its way lower.
The short side seems to be the obvious side but it can be a real pain in the buttocks. This is especially true when the market is choppy.
Sometimes, the best action is no action. Some nights I fill an entire notebook page with possible setups. Last night, I only wrote down 8. This isn’t many when you consider that I start the afternoon with around 3,000 stocks to dig through. Of those 8, 7 are shorts and only 1 is a long.
The database speaks. Again, going through tradable stocks, I see that most are in downtrends.
Even with Wednesday’s rally, I’m still left with all my recent concerns such as what’s going to happen when the narrow leadership begins to correct. Don’t worry, I won’t go on and on. I’ve done enough of that recently. If you do want more of my perspective, see the calendar to the right of this column. Warning, do not operate heavy machinery after viewing (that line was stolen from Greg Morris).
As I wrote yesterday:
“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.”
For the most part, trading this market is probably a bad idea.
So what do we do? Pay attention to the sideways arrows in the Ps and Quack. The only way to make money is to catch a trend. And right now, there isn’t much of one. For the aggressive, keep an eye out on the highfliers that appear to be rolling over. Selected Energies are a good example here. Yet 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.
Come to the chart show if you’re not too busy saving lives, building buildings, training dogs, repairing automatic transmissions, or doing other great things.
Best of luck with your trading today!
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