As a good little trend follower, I have been busy looking for trends. The one thing I have to be careful of is to try to make something happen when nothing is there.
The Ps have now gone sideways for over 3 months. This should be a clue to be careful.
The Quack remains in a downtrend but it too is becoming choppy. On a net net basis, it remains unchanged for the last month.
The Rusty also remains in a downtrend and has worked its way lower over the last month. However, it has also has become choppy as of late.
There have been a few great shorts setting up lately. Some have worked nicely but most have not. They have become choppy like the market.
I think portfolio ebb and flow remains key. Let the market put you into new positions by waiting for entries. Let the market take you out of losers via stops. And, let the market take you out of positions whose useful life has come to an end via trailing stops. The only thing missing in this equation is a good offense going in. I know its cliché but pick the best and leave the rest. This is especially true in this environment. You want to be very selective.
Most of the areas that remain in solid uptrends are still defensive in nature: Energies, Foods, Tobacco, and Utilities. REITs also remain in uptrends. One has to wonder if this is a defensive area too since they involve tangible assets. Other than those areas, there’s not a whole lot to get excited about.
Most tech still remains in a downtrend, like the Quack itself.
Many other areas appear to have topped (e.g. Leisure) and/or remain in downtrends like the broader based Rusty would suggest.
The bottom line is for the most part, the market still looks questionable at best. See my recent columns, especially “What’s Propping Up The Ps?” for more on this. Unfortunately, looking questionable doesn’t do you any good unless it follows through.
So what do we do? Continue to watch the Defensive issues for possible setups. Ideally, I’d like to see a correction overall here first but some individual issues are beginning to set up (e.g. in the Energies). On the short side, I’m still seeing a few setups but the lack of follow through recently is concerning. I think now is the time to avoid being aggressive—one way or the other. By being more and more selective during these choppy times we could end up flat and waiting. Obviously, you’re not going to get rich if you’re not playing but sometimes the return of capital is more important the return on capital. I guess all of the above is a long winded way of saying that we could end up sitting on our hands.
Futures are firm pre-market.
Best of luck with your trading today!
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