Too Soon To Get Crazy Bearish

Random Thoughts

The Ps sold off fairly hard before bouncing off their worst levels. For the day, they lost nearly 1%. For those keeping score, this action has them closing just below their 50-day moving average. Shorter-term, they are oversold and due to bounce. Backing out to the forest, not much has changed. Net net, they are trading where they were over 4 months ago. The big blue arrow points sideways. I also still remain concerned about the May/August/September triple peaks.

The Nasquack also dipped but did manage to bounce off of its worst levels. Still, it did end over 1% lower nonetheless. Longer-term, the uptrend remains intact here. A good reference is the 50-day moving average. Notice that the slope remains decisively positive and there has been “daylight” (lows > the moving average) since July (see charts below). There’s nothing magical about slope and daylight but it can help to keep you on the right side of the market. Study it if you get a chance. You’re welcome.

Also, when it doubt, take the chart out. Just remember that there will be lag with ANY indicator.

Make no bones about it, Thursday was not a good day (duh). The good thing is that the market did bounce off its worst levels so it wasn’t a complete route. Also, Gold caught a bid, albeit slightly. This action suggests that it wasn’t a complete liquidation where all asset classes get sold in a panic.

It still remains a tale of two markets. As a general statement, the big cap stocks as represented by the S&P have lost momentum but technology and smaller cap stocks as represented by the Nasdaq remain in uptrends.

The Ps still look a little toppy and are sideways at best but they haven’t tipped their hand to a rollover just yet.

The Quack is hanging in there but has lost some momentum short-term.

So what do we do? Again, it is a tale of two markets. When it is mixed like this, you have to be really selective. Pick the best and leave the rest. On the long side, look stocks that are trending, trade cleanly, and are (obviously) set up. Also confirm that their representative sector is also rallying and that stocks within that sector are also trending. On the short side, I think it is too early to go crazy bearish. Do keep an eye out for the aforementioned big cap stocks that might be losing steam. Previous high fliers could be priced for perfection and could quickly become a source of funds if the market begins to rollover. No matter what you do, continue to wait for entries. That, in and of itself, can often keep you out of new trouble. Borrowing from yesterday’s column: Lately we have had numerous stocks that were on the radar fail to trigger. Dodging as many bullets as possible is a crucial part of successful trend trading. Above all, honor your stops on new and existing positions just in case the market fails to follow through.

Futures are flat to firm pre-market.

Best of luck with your trading today!

Dave