Sunday, February 09, 2014

Never Mind

Last  Thursday my post was a classic of bad timing. I got carried away overemphasizing the bad and failing to point out the market's oversold condition which set up the possibility of a bounce or more. I also failed to point out the possibility of making some long trades. Lastly, I did not put the broken index support into proper short term, intermediate term or long term context.  Mea Culpa. Gilda Radner as Emily Littela on SNL said it best:

Then again, my next post on Friday essentially showed that being a flexible trader can save the day.  I may have sounded the ultimate "Market Busted" alarm prematurely, but I went with the flow and still made money. Nothing was lost even if one had listened to me and stayed in cash. That is because on a best case basis this market is still nowhere. And on a worst case basis the we still may not have seen the ultimate bottom. A cardinal rule is when in doubt stay out. And this market still has me in doubt.

Furthermore, even after this two day bounce, this market still is nowhere on the charts. No one can say that the market has bottomed and is off to the races again.  None of the major indexes have broken to new highs. Yes there is a possibility of another "V" shaped move to the old highs or more. There was money to be made by fast traders on the long side. In that respect, I did stick to my rules by taking profits fast, making some money and exiting some nice long trades before they could "get me" as I stated in my last post.

I do not have the capability to make long updates on my blog during the heat of battle while trading. But I do make several updates about many of the things that I am doing in my Twitter posts and on the private IV discussion board that I set up.  See the links that I just inserted on the upper right side of my blog. As one can see, I did make the updates about my trading in those posts. The posts are just about in real time - hey you try putting on a trade, concentrating on the action and posting at the same time. 

The most important thing in my view, is to have an investing or trading thesis and to be flexible enough to call an audible if conditions change.  In this case my failure to put the short term oversold market in perspective was the "condition" that changed. Stick to one's thesis until the tape and events proves one wrong.  And don't be stubborn by fighting the tape. The past two days, victory was snatched from the jaws of defeat by the bulls who pulled off the second day of an oversold rally. As a trader, I was flexible enough to check my ego at the door. If this market is choppy and calls for counter punching, so be it.

So let me set the record straight by putting things in context. The market put in a short term top in the first weeks of the year and then broke another support level last week. The market is not in an intermediate or long term down trend. The recent sell off may become something more, or it may just be part of a short term consolidation. The jury is still out as to that. 

I am still net long and ready to trade fast into Janet Yellin's comments on Tuesday. Hopefully I will catch some gap up openings or follow through on Monday and then get into cash. Then I will reassess things. Here are some charts:

Major Indexes Show Varying Degrees of Strength And Weakness:

$SPX I am still short a small position in the SPY for a losing trade / hedge so far. I'm just going to play this one by ear. If it looks like the most widely watched barometer of the market is hitting the wall at resistance created from the top it just broke down from - circled - I may trade around the position. If the SPY looks like it will break through and run to the old highs, I will cut my losses.  

$NDX The NASDAQ 100 is where the action is lately. As one can see it is the best performing chart of the major indexes. That is because the best momentum growth stocks are located here. These stocks, such as GOOG, NFLX & TSLA are the ones that have been getting most of the action. Is this a sign of a bifurcated tape of the "haves" and "have nots"?  Or will these few leaders gain more followers and lead us to the promised land? One caveat is that even this index is a mess, with stocks like SBUX and AMZN having been hit hard. If one is going to trade these stocks, one had better trade the ones that have great news or earnings, great guidance, and great charts.

$RUT The small cap Russell 2000 has lagged so far. This shows how the big money has stayed away from small caps more speculative stocks to date this year.

$INDU The big old lumbering non representative 30 stock Dow Jones Industrial Average has lagged the other indexes. This $INDU is a joke comprised of 30 stocks that typically get invited into the index just when their time of great growth is over.

$VIX  The $VIX turned around at the same resistance point that it did the last few times. It has now fallen back to a not scared level - circled on chart. So much for some real fear. Long live run of the mill agata.

Other indicators like the Standard and Poors Oscillator went into oversold territory at minus 6. Usually anything below minus 5 is means oversold, but I have seen this indicator get to really bad levels of minus 10 or more. That is when the oscillator works best. The oscillator is one of the great indicators. It used to be given out as a freebie back in the day.

ATHN - Blasted to a new all time high on it's fabulous earnings report. This stock has great growth and a low PE multiple. I grabbed it for a great trade on Friday and then got back in later in the day looking for some follow through on Monday.

DIS - I sold DIS on Thursday and will now keep it on my watch list for a break out. It was only natural for a big cap Dow stock to hit the wall at major resistance.

EOG - This asset rich shale play broke out of a nice base below its all time highs. Great company. Tight stops.

MU - Barely broke out last Thursday. I have been trading around this long.

TWTR - I am waiting for my shot at shorting TWTR. The key matrix was the shocking declining subscriber growth that was reported last week. The stock is retracing from it's break down.

YELP - broke out on another great earnings report. Great growth, but ridiculous high price. Bought back on Friday's dip and holding for some follow through.

As the last several days have shown, this market is trading in a psychotic manner. If one is nimble enough to scalp some day trades or short term trades, there is money to be made. If one is not fast enough, one can get killed. That being the case, cash is still king until this matter is settled. The questions are still: Is the market busted or breaking down? Will the market make another "V" shaped bottom to add to the many that were made last year? Is some longer term consolidation evolving? Will the market continue to remain choppy? And so on.

One thing is for sure. There is no answer yet and this roller coaster ride is no way to live as an investor. Right now, at best one can say that the market is range bound with a few anointed stocks like NFLX or special earnings or news driven situations like ATHN making highs. At worst this is a bounce back that is about to fall right back down. Its hard to make money in a market that is not trending higher. Right now, there are no indexes making highs and very few market leaders. So in my opinion opportunistic trading? - yes. Investing? - No.

BIG Capital Advisors and Seaview Partners are not responsible for your investment decisions. We believe very strongly in our opinions, but you must perform your own due diligence in making your investment decisions.
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