Majority Cash / Possible Bump-and-Run

I feel very comfortable being in approx. 65% cash with a 30% long and 5% short exposure. I am prepared to deal with both an up and down market. I made no purchases yesterday and also removed five of my positions in the morning (FEED, COIN, CPE, NXG, WRES) primarily to build a large cash position. Not bad on the timing part. In the end, I was only down -0.27%, or basically flat, on a day when the SPX dropped -1.32%. This is the result of my morning sales, the FAZ hedge, and gains in TVL and BZ. My worst position was FLOW, down an ohh soo scary -5.9%.

Recently, I’ve heard grumblings from people who won along side me with 20-40% returns. They want more and are no longer satisfied with 5-10% gains. Well, unfortunately, you can’t play $1 stocks forever. It’s one of those strategies that work in certain situations (like the past 2 months). Many of the names I played will go back to $1 or out of business. Don’t get greedy up here, raise cash and/or add a hedge and lock in profits whenever you get the chance.

As for the general market, I am very cautious. One of my short conditions may have been met today via the exhaustion bearish gap up and it was accompanied by massive volume (look at 7-month SPX chart). This kind of volume has been associated with bottoms, but it can also mark tops. Pullback volume should be much lower. In the past, however, tops were marked by decreasing volume which means that this could mark an initial phase of a blow-off top. I wouldn’t surprised since we are up 34% from the March bottom.

A bearish scenario would be a “bump-and-run” reversal shown in my amateur diagram below. This occurs when a stock/the market (I’ll use market) releases itself from it’s primary support and simply runs up too far, too fast. It consists of 3 phases: the lead-in, bump, and run. The lead-in is the ‘normal’ trend support that the market has been following. The bump is when the market makes a sharp advance, leaving a ‘pocket of air’ between it and the support. The run is when the market rolls over to revert back to the mean. Before it rolls over, the consolidation looks like a normal pullback. Something to keep in mind.

The COMP has broken down from the 200-day on it’s highest volume since November. Not good at all. I expect a lot of whipsaw around this area. Fair warning.

Long holdings are now as follows: AHD, BZ, CNO, CNXT, EMKR, FLOW, HGSI, TVL. Few of them will be sold in the morning, but I wouldn’t know which ones until I see how they act.

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