Take things one day at a time is what I preach. If the market can string together a series of good days then that’s a good thing. If the market strings together a series of bad days then that’s a bad thing. And, if it makes a series of good and bad days then it neither good nor bad—it might just be sideways. Now, before you say “duh” you’d be surprised how many people project 1-day’s action into eternity. The market has an ugly day and the bears are quick to say I told you so. The bulls are just as guilty.
The point is that the canvas unfolds one-day-at-a-time. You have to put the day’s action within perspective. In doing that, the Ps (S&P 500) have lost nearly 3% in 4 days. That’s nothing to sneeze at. It looks like it’s on its way to test the bottom of its trading range.
As a trend follower, it is important not to get too caught up in the action as long as the market remains in its trading range. Near the highs it will look like all is good in the world. And, near the lows, not so much. You have to wait and not anticipate. Draw your sideways arrows. As we say in the south, the sun doesn’t shine on the same dog’s ass every day. So, as long as the market is going sideways, the sun isn’t shining. Therefore, we wait.
“Remember this: When you are doing nothing, those speculators who feel they must trade day in and day out, are laying the foundation for your next venture. You will reap benefits from their mistakes.”
That’s the wisdom of Jessie Livermore. Well said Jessie!
Read the book at least once a year. You’ll thank me for that.
Okay, so Big Dave there’s nothing to worry about? Well, I never said that. Things deteriorated significantly on Wednesday. My point is, let’s see what Thursday and Friday (and MUNDay, Tuesday, Thursday, Wednesday…) brings.
Okay, I’ve prolonged the inevitable. Let’s look at the carnage:
The Ps lost 1 1/3%. That’s not the end of the world but again, it does add up to 3% in 4-days. It also closed on its buttocks. This action suggests that no one wanted to take ‘em home.
The Quack (Nasdaq) started strong but also ended on its butt. It lost nearly 1% and is down nearly 3% in 2-days.
The Rusty (IWM) was, to coin an oxymoron, pretty ugly. It gave up nearly 1 ¾%.
Obviously, I don’t have to build a case for how ugly Wednesday was by going through all the sectors. So, I think a few highlights would suffice:
Banks sold off with vigor, losing nearly 2 ½%. On a longer-term basis, they still remain at high levels and still look dubious longer-term. What’s scary is that if that they have a long way to fall if they don’t stabilize soon. Ditto for Financials in general.
Areas in trends like Drugs and Biotech had their trends interrupted.
Many areas that are range bound (like the market) have either stalled at the top of their range significantly or are now probing the bottom of their range.
The Energies turned back down hard. Notice that lately I have been saying that they are bottoming and not that they have bottomed. Sometimes bottoms take time. Be patient and avoid the Siren call to bottom fish here.
Speaking of bottoms, Gold and Silver stocks got whacked on Wednesday but they still appear to have formed a bottom. I think it is just going to be a bumpy ride higher—typical for commodity based stocks. Study market efficiency when you get a chance. I have an article in TRADERS on just that but unfortunately, it’s in German (It might be in the Greece version too but I’m not sure. It’s Greek to me) . The English version will be out next month. In the meantime, see my Youtube channel for videos on this and a plethora of other topics.
So what do we do? Well, my job is easy here. Just a cntr-a, cntr-c, and a cntr-v from yesterday:
Again, don’t worry about figuring it all out today. Do honor your stops on existing positions just in case. He who fights and runs away lives to fight another day. I think it has been 24 hours since I last said that. DO be selective. I think you really have to pick your spots carefully. I have a gold and a speculative IPO on radar and that’s it. Both of these have the potential to trade contra to the overall market. For the most part, let ‘em fight it out. I read recently that trading was 50% patience. I agree except that I think that number is more like 75%. The other half is mental, money management, and good stock selection (please Google Yogi Berra before you question my math).
Best of luck with your trading today!
PS Chart show today! I’m going to tell you everything that you ever wanted to know about setting stops but were afraid to ask. Bring your questions. Also bring your favorite stock picks and we’ll have a look. Please join us because without you, there is no show.
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