Dressed in Your Best, Prepared to Go Down Like Gentlemen

First and foremost, the way in which the bulls were able to bounce us sharply off Tuesday’s lows surprised me. It may very well prove to be some type of tradable bottom, though as I mentioned in my video recap, we need to see some upside confirmation or at least some calm, sideways activity to firm up charts before I am willing to significantly add to my long exposure. Either way, you can see the importance of being prepared and nimble over the past few months of price action that we have seen. It is important to have both long and short ideas in your arsenal when the market is in a corrective phase.

Beyond that, consider this an educational post for future corrections, regardless of whether or not this one has run its course.

For active traders, quickly turning on a dime and scrambling to find names to short is not only stressful because you may have been caught off-guard by the market, but it also illuminates just how prepared we have to be for anything. As legendary basketball coach John Wooden once said, “Failure to prepare is preparing to fail.” Rather than panicking and sloppily searching out various hedges when the market quickly weakens, a better approach is to already know which stocks are under heavy distribution and exhibiting poor relative strength. To be sure, The PPT algorithm will detect this weakness in both price and volume via a rapidly deteriorating daily Hybrid score.

Other traders furiously search through random “tweets” to find short ideas. This essentially amounts to being third class steerage on The RMS Titanic. However, members of The PPT are in quite a different social and economic class, indeed. As part of your PPT membership, all you have to do now is click on my custom “Titanic” screen in The PPT, which encompasses all of the parameters mentioned above, limited to stocks trading at least 500K shares of average volume per day, so that you are not stuck shorting an illiquid name.
In other words, as the stock market ship sinks, The PPT & 12631 members enjoy First Class privileges of sailing away in custom lifeboats, too busy to so much as glance back at the poor trapped souls stuck in steerage.

In addition to the Titanic screen, I created another screen called, “Third Class Steerage,” which further isolates stocks under heavy distribution. As a variation on the “Titanic,” this screen also shows PPT readings for heavy selling by institutions. I added the parameter of stocks showing high volatility scores, which supports the idea of distribution (increased volatility is often associated with tops and bottoms).
Moreover, and this is the key point, I have filtered out stocks that are UP over 50% on a 1-year timeframe, but are also DOWN more than 10% in the past month. What this does is allow me to proffer concrete evidence supporting the distribution thesis that funds are dumping shares to retail investors, after presumably banking some impressive coin for several quarters. No, it does not by any stretch mean that a major bear market is upon us–That would be too much of an extrapolation. What it does mean is that you are better prepared for corrective markets.
CLICK HERE TO BE A FIRST CLASS MEMBER ON THE TITANIC
CLICK HERE TO FROWN UPON THIRD CLASS (STEERAGE) PASSENGERS ON THE TITANIC