The Key To Trading

Random Thoughts

You can call me a lot of things (but please, don’t call me late for dinner) but you can’t say that I’m inconsistent. Consistency is key when it comes to trading. Lately, I have been saying nearly the same thing ad nauseam. And, like the recently mentioned preacher who kept repeating the same sermon, I’m going to continue with my mantra until everyone gets it. So, here we go.

Take things one day at a time is good advice in life and even better advice in trading. Lincoln’s right. “The great thing about the future is that it comes at you one day at a time.”

Just last Friday things were looking a little ominous. This is normal for a market that’s on the cusp of breaking down out of its range. The Chicken Little’s were peeping that the sky was falling. And, admittedly, it could have–but it didn’t. The market basis the Ps (S&P 500) probed to new short-term lows on Monday but promptly reversed to close well and in the plus column by over 1 1/3%. Then, on Tuesday, it tacked on even more. This action has them returning to the middle of its trading range and less than 2% away from all-time highs.

The Quack (Nasdaq) gained just over 1% on Tuesday. This, plus Monday’s action, also puts it back to the middle of its sideways range and  just a  little over 1 ½% away from 14-year highs.

The strength was broad based as evidenced but the Rusty (IWM). It gained just over 1 ¾%. Like the Ps, it is now less than 2% away from all-time highs.

Although the indices aren’t too far away from their old highs, they still remain stuck in a range. As I preach, if a market is going up you should be buying. If a market is going down you should be shorting. And, if a market is going down you should be sitting on your hands.

Gary Kaltbaum once said “Give me an uptend, give me a downtrend, or give me a ticket to Tahiti!” Well said Gary. Speaking of world travels, the next stop on my world tour will be Italy. So, for my Italian brethren, I’ll be preaching the good word in your beautiful country soon (thanks to my smokin’ hot wife Marcy for dropping off my robes at the cleaners yesterday).

Let’s look at the internal action:

Retail broke out decisively from its sideways range.

Ditto for Defense.

As you would expect, a lot of areas such as the Semis are now back to the middle to top of their ranges—like the indices themselves.

Some recently stronger areas such as Drugs and Biotech took a bit of a breather but so far their trends remain intact. It’s normal to get a little sector rotation here and there. Hopefully (a word that must be used sparingly in this business), we’re just seeing a bit of a “rolling correction” here.

The Energies had the mother-of-all days, gaining nearly 3 ½%. As I have been saying, they appear to be bottoming. Noticed I used the gerund because it appears that it will be more of a process than an event. Like Gold late last year, there’s no need to be a hero here just yet. Remember, as a trend follower we will always be a little late to the party.

Speaking of Gold, Gold and Silver stocks lagged a bit. A big picture bottom still appears to remain in place here but they’re not going to make it easy on us. That’s the problem with commodity based stocks. The efficiency of the underlying market can cause a lot of fits and starts. I have an article for TRADERS coming out soon in German and then English thereafter. In the meantime, see my Youtube channel for more information on efficiency.

Yesterday was a fantastic day. Now, let’s not start kissing each other just yet. Let’s see what today brings. Stop me if you’ve heard this before but have I mentioned that the market is still in a range?

So, what do we do? There’s not much new action to be taken. I’m seeing a few shorts setting up but this is normal for a pullback based methodology—those stocks that have recently sold off are now pulling back, lifted by the overall market action. I don’t see any reason to rush out and start shorting as long as the market remains stuck in the range. There’s also no reason to rush out and buy either. Therefore, focus on those issues that can trade contra to the indices. Right now that remains the Golds/Silvers and a few speculative stocks such as IPOs. Watch this video for an intro to IPO trading. For the most part, let everyone else fight it out. See the last dozen columns for a lot more on that.
Best of luck with your trading today!

Dave

P.S. You like the juice? Juice is good? (Google it). I’ll be on Financial Juice at 9:00 Eastern today. Click here to listen or see the countdown in my website sidebar.