On Wednesday we had a shake out of Tuesday’s fake out. As mentioned yesterday, riding a trend is like trying to hold on to a bouncing bronco (Covel/Dunn).
The Ps (S&P 500) sold off hard, closing down over 1 ½% and just off their lows for the day. This action suggests that “they” didn’t want to take ‘em home. So far, they only appear to be pulling back. Obviously though, they have to stop at some point. Circa 2,000 would be a good area to watch. This corresponds with the prior peak and is a big round number. A “1” digit in the thousands place would likely have some psychological impact.
The Quack (Nasdaq) also got hit hard. It lost nearly 1 ¾%. 4600 is the next inflection point here.
The Rusty (IWM) was just plan ugly. It lost over 2%. This action puts it almost all the way back to the bottom of its shorter-term trading range. Obviously, it is important for these levels, circa 114 to hold.
Is it time to run for the hills? No, not yet. First, most sectors still remain in uptrends and at or near new highs. True, some areas are beginning to look a little dubious but for the most part, most are trending.
If you caught a little of the chatter yesterday, you would think that it is the end of the world. It’s amazing how the bears come out of the woodwork on the first signs of a spill. Predict early and often I suppose.
Do not get caught up in the panic. Do honor your stops. Do wait for entries on new positions. Also, you might want to be a little selective to begin with. Ask yourself, is this setup really that great? If so, take it!
My goal is to avoid labeling myself. Once you do that, you tend to paint yourself into a corner, having to justify your stance. With that said, since I know Enquiring minds want to know, I’d say that I’m cautiously optimistic (how’s that for a couch?). The longer-term trend in the Ps/Quack and most sectors remains intact. I see no reason to fight it just yet. Do pay attention. Watch the aforementioned inflection points. Dust off your Bowtie moving averages just in case. On a crossing you’ll want to pull in your horns. Read Layman’s (great stocking stuffer by the way, provided of course you have a big ass stocking…it’s “Dr. Suess” size) and watch my Youtube on Bowties. Keep an eye out for debacle de jours in individual issues. Watch to see if more sectors begin breaking down. Again, pay attention.
So what do we do? I think you can continue to focus on the long side with the obvious caveat that you wait for entries. It is amazing how many times that, in and of itself, can keep you out of new trouble. As usual, honor your stops on existing positions just in case. Speaking of just in case, also take partial profits if blessed with them just in case we do not see upside follow through. As I preach, there’s no need to be a hero–let the ebb and flow control your portfolio.
Best of luck with your trading today!
P.S. Chart show today! If you are not busy saving lives, building buildings, repairing automatic transmissions, or doing other great things then stop by because I have a great show on tap. I’m going to flesh all of the above out in a lot more detail, discuss the ongoing bull market in IPOs, show you why tighter stops do not necessarily mean less risk, plus a bunch of other stuff. I’ll also field your questions on trading in general and analyze your stock picks.
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