Not much has changed in the markets. They still look dubious at best. The Ps (S&P 500) & Quack (Nasdaq) have rallied up towards overhead supply and have stalled and reversed on a kneejerk reaction to the Fed.
Speaking Of The Fed
Kicking the can down the road works quite well until it don’t. There’s plenty of others with a lot more to say here so I’ll let them keep up the good fight. Getting too caught up in all this—or anything other than price itself-can cloud your judgement. Essentially, the Fed has painted themselves into a corner. They’ve reached a point where they’re damned if they do and damned if they don’t. Enough said.
Bull Or Bear And Exactly Where?
I’m often asked exactly where I will be a bull or a bear. Since markets are fluid, it’s often a Justice Potter Stewart answer—I’ll know it when I see it. The answer today would be that the market would have to make new highs before I’d begin to get excited about the long side again. On the short side, I think I’ve made my case clear. Again, the market remains dubious at best. If the Ps did take out their last 2-week lows, I’d be concerned because this would complete the last phase of the sign/signal/setup/trigger (read further).
You Need To Have A Framework
You have to have a framework defined to work with in markets such as a trigger on a setup. In general, it can be something as simple as the market must make new highs for you to be bullish or make new lows for you to be bearish. And, if the market is sideways or behaving erratically, you wait. You have to have a set of if/then rules an act accordingly.
You have to reach a point where you know that you do not know but you take positions based on the price action-clues that will help you get on the right side. Triggers help to ensure that you’re right, at least at that moment. Stops take you out when you’re wrong.
You’re going to be wrong a lot. Rub some dirt in it. Get used to it. You’ll be wrong less and less with experience. You’ll be wrong less when you stop trying to factor in the Fed, sentiment, bar/wave counting, and of course, THE SITUATION IN NIGERIA! You’ll also reach a point where if you’re doing everything properly then being wrong means that you’re due to be right—a classic Douglas story told yet again by me in yesterday’s show.
You’ll be wrong less when you realize that you can’t catch every zig and zag. Some were surprised when I said that this market would have to make new highs for me become bullish. What about between here and there? I don’t care. As a trend follower, sometimes you have to wait for a trend to follow. Picking your spots carefully, even if that means waiting, is one of the secrets to trading.
I fleshed out quite a few other secrets to trading in yesterday’s Dave Landry’s The Week In Charts. This included biggest secret of all (spoiler alert): the secret is that there is no secret. Check out the Youtube below. The show is free and must be good because people often say “Dave’s good for nothing!”
I intended to only do a brief update today but once I get talking, it’s pretty hard to shut me up. Anyway, I think everything said in Wednesday’s column still stands. So, if you missed it, based on the feedback, (thanks mom!), you missed a good one. Keep reading.
Signs, Signal, Setup, Trigger
Not much has changed in the markets. They still look like they are in trouble. They have obviously broken down and so far, they have only pulled back. There’s still a mountain of overhead resistance to overcome, there are now weekly sell signals such as the Bowtie & First Thrust, and of course, the DEATH CROSS. There’s no need to beat the dead bull, I mean horse, since I covered all this in Monday’s video market update, Dave Landry’s The Week In Charts, and recent columns (scroll down/see archives). In a nutshell, again, the market still looks dubious.
So Dave, are you now a bear? Has the bull market died? I dunno. No one does for sure. What I do know is that the signs are there. The market can do whatever it wants. If some of the aforementioned signals begin to trigger, especially on a weekly basis, history has showed that you better pay attention. Maybe “this time is different” but those are the 4 deadliest words on Wall Street. I do hope that this time is different. Unfortunately, though, unless you’re Bill Clinton, what is is.
I guess what has changed is the fact that the market has begun to chop back and forth. Ideally, I like to see setups trigger quickly on the short side. Those who rode it down and were waiting for it go to back up are caught off guard.
The weeks of chop have left us with very few meaningful setups.
So Now, We Mostly Wait
I used to feel like I always had to be in the markets. Now, something really has to knock my socks off before I dip a toe in. It took me a while to learn that it’s better to be on the dock wishing you were out to sea than to be out to sea wishing you were on the dock.
Seek Out Inefficiencies
Seek out inefficiencies. This means to look for stocks that have defied gravity. We have one stock on the radar that has somehow pushed higher in spite of the recent market spill. It has demonstrated that it can shrug off the situation and hopefully-oops, did I say hope?-continue to do so. IPOs are another place to look for inefficiencies. It seems like the demarcation between the good ones and bad ones is more obvious now more than ever. There’s not much to do here either but a few have forged ahead and could set up soon.
Look For Stocks That Can Trade Contra To The Overall Market
Seek out stocks that can trade contra to the overall market. Commodity related stocks such as the Energies and Metals & Mining are good examples here. This doesn’t mean blindly buy them. Wait for signals, setups, and triggers here too. I’m seeing a few lower tiered more speculative issues beginning to set up. For the most part though, these sectors remain in longer-term downtrends. So far, it looks like the bottom will be more of a process than an event. As mentioned in Monday’s video market update, this might be a few more weeks…or months.
So What Do We Do?
In an ideal world, you want the market, the sector, and the stock to all be headed in the same direction. This helps to stack the odds in your favor. It’s hard to get all three but sometimes you get what I call the Meatloaf trade: “2 out of 3 ain’t bad.” Unfortunately, now, it’s hard to even find 1 out of 3. Keep doing your homework though (or pay me and I’ll be happy to do it for you—I’m doing it anyway!). Just make sure when you do find something that you truly do have the mother-of-all setups. The short side is now getting tricky (heck, it’s always tricky!) due to the aforementioned chop. Yes, I still think the market is in trouble but getting aboard might be tough. The bottom line is, again, it’s okay to sit on the sidelines and let everyone else fight it out, especially if it’s a dead bull.
Not To Leave You On A Low Note But I’d Be Remiss….
A good friend of mine’s wife, Karen, tends to bring up bad news right before the entre is served. So, if you’re getting ready to sit down for breakfast, my apologies. Not to “Karen you” but I am deeply saddened by the loss of one of our greats, Mark Douglas.
To my viewers of Dave Landry’s The Week In Charts, you know that I was a huge fan of Mark. I quote him often-just last Thursday in fact. Early in my career when I wondered if I’d be better off flipping burgers it was the writings and seminars of Mark that helped me work through the tough psychological demons that comes with the territory. In more recent times, I have found myself reviewing his material to help me in my presentations (present and future) on trading psychology. This makes it even more current and relevant for me. There’s a lot more I’d like to say but I’m concerned that it would be perceived as more about me than Mark. I owe you a lot Mark and wonder if I’d even be sitting here without you. My condolences to his loved ones.
Best Of Luck With Your Trading Today!
Free Articles, Videos, Webinars, and more....