Cross-Dressing Over to Some Dips with Rips

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The essence of a newfound volatile market full of indecision is that one day victorious bulls are lecturing you in patronizing tones about how Wall Street involves risk and that you have to be in the game to win. The next day, as the market craters, bears are on television dressed in their Sunday’s best and offering up sobering pragmatism as to why we are in need of a healthy capitalist cleansing.

The reality is that we remain in a very choppy market that is, by definition, designed to frustrate and make fools out of both stubborn bulls and bears. Those traders who can hold out in heavy cash and exude discipline will ultimately be in the best position to strike when the time is right. To my eye, the correct time to strike is when the trading range we are in, illustrated below, resolves one way or the other. Until then, nimbly buying the dips and selling the rips is working for aggressive traders with a very short-term timeframe.

The increasing size of recent daily price candles and heavy selling volume on down days are friends of the bears, not bulls, especially in light of the steep uptrend we have seen over the past few months. Nonetheless, as the market has demonstrated countless times, preemptively shorting has been a huge money loser. Thus, the best strategy continues to be cash, until the range breaks one way or the other, without any emotion as to whether the bulls or bears ultimately emerge victorious from this chop.

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