Even being in 100% cash, this market is still taking me on a wild ride just in terms of observing the day-to-day swings. All of yesterday’s gains have been erased, and then some, as the bulls failed to hold the promising bounce. Treasuries are breaking out to fresh highs, using TLT as a proxy, which is also likely putting pressure on equities. Furthermore, the Dollar is continuing to push higher, while the Euro has not stopped sliding. While an argument can be made that each of those respective trends are quite stretched, trying to bottom-pick the Euro or top-tick the Dollar and Treasures has been a clear losing proposition thus far.

On the bullish side, improved stocks like CMG and LULU are benignly consolidating yesterday’s gains with an inside day thus far. If we have bottomed, then bulls are going to want to see more and more stocks set up like that, in a good position to lead the next leg higher. However, I am still not interested in trying to be a hero in this market. In my view, feeling compelled to be in the market at all times is a recipe for failure in the long run. Although the bulls have had plenty of chances to bounce us higher, it looks like the course of action taking place is something we have been discussing in 12631–The idea of a “three steps forward, two steps back, three steps back, two steps forward” market, where not much is accomplished except chopping up traders forcing in low probability trades.

That said, I am still ready for anything with an open mind. While I am willing to turn on a dime as the market adapts, my main focus is on avoiding the roller coaster of a market we are seeing right now, where you might have fun trying to time each precise top and bottom, but when the ride is over you will get off feeling queasy with a lighter wallet.

 

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As I discussed last week, I have no problem watching a few pitches float by when the market is in a correction and the temptation is to play for the big bottom. There are many ways to consistently profit in the stock market as a trader, but mixing and matching styles (e.g., turning a momentum trade into a mean-reversion play when it goes against you, waiting for it to come back) out of convenience is usually one of the easiest ways to blow out your account. I know what I look for, and it has by and large served me well over the years. Just as being a stubborn bull was the goal in the obnoxiously overbought market during the first quarter of this year, erring on the side of caution via an outsized cash position has kept me out of trouble since April, all the while getting a few huge wins in AEO DFS and MNST along the way inside the 12631 Trading Service.

I am focused right now on keeping a pristine watchlist, with stocks that may be firming up here and ready to lead us on the next sustained leg higher, whenever it may come. As an example, while the chart for the XRT, ETF for the retail sector, is quite sloppy on many accounts, there are a few highly impressive individual retail stocks to observe. Quite a bit of attention has been given to athletic apparel and footwear firm Under Armour. Indeed, UA has been impressive during this correction, holding up very well and pushing up towards the highs over the past week.

In addition, note two stocks in the same broad industry–Foot Locker and Finish Line. Just as with Under Armour, Foot Locker is actually too extended for me in the short-term for a proper swing trading entry point. As a pin action play, though, I am looking at Finish Line if it can squeeze past $23 tomorrow in a strong overall market.

In sum, I am prepared but will not force the action. The overall technical picture has considerable room for improvement, which means I am going to patiently leg back in if the bulls can build on Tuesday’s rally.

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The bull thesis rests on last Friday’s low being a good one, lending itself to a squeeze higher into the traditional flag-waving Memorial Day holiday weekend. I want to be ready to pounce on a few stocks that have weathered this correction extraordinarily well, such as the ones below with my chart analysis. The idea is to be prepared if the bulls follow-through to the upside, but not force the issue if we see continued churn. If the latter happens, continuing to play defense and sit in cash is the correct strategy.

Although the stocks below have shown good relative strength, it is hard to “set ’em and forget ’em” as long-term swings in your portfolio at this point given the technical damage that the market has recently suffered. However, it is worth being prepared and in good position to confidently strike them with a few quick trades to participate on the long side if we see the market bounce into the weekend.

12631 members should check the main blog inside our service for even more ideas.

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Earlier on Wednesday’s video market recap, I noted that the shocking lack of bids in the market warranted at least considering that we might need a few bloody days before arriving at a true tradable bottom. The good news for bulls is that sentiment seems to be finally shifting back towards the bear camp in a much more pronounced manner than what we have previously seen since the correction began. Betting on mimi-crashes is an extremely difficult proposition in terms of getting the timing down, let alone actually seeing the rare event transpire.

Thus, I continue to keep an open mind here, looking to pick off shorts here and there, all the while building a list of stocks holding up extraordinarily well during this correction. In my view, the leaders for the next leg higher of the bull (assuming we do not fall into a bonafide bear market) will be those fast-growing firms building bases right now in a rather orderly manner, while former leaders fall down the other side of the mountain. Instead of getting caught up in the emotion of trying to catch each opening gap higher or lower, I suggest the exercise of combing through charts to find such leaders. If and when the market actually bottoms, the likes of AMZN DNKN MIDD PCYC SGEN TRIP WFM may very well turn up first and lead the charge.

Inside the 12631 Trading Service here at iBankCoin, I am compiling a more extensive list for members on a daily basis. If the market bottoms soon, we are in a great, cash-heavy position to turn on a dime and prosper like we did at the beginning of this year. On the other hand, should we continue to drip lower in the manner which we have in May thus far, the defensive posture keeps our portfolios protected and our mental and emotional health sound.

We have recently received some fantastic testimonials from current members about our service. Please click on the 12631 hyperlink to see the testimonials (scroll down after my video and the description of our service) and join the best atmosphere and community for traders on the web.

 

 

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I gave an extensive list of trading ideas this week inside 12631 for members. Whether the longs or shorts actually trigger remains to be seen. Below, you will find one short idea and one long idea for tomorrow and beyond. The market continues to be on shaky ground, chopping up overly aggressive longs and shorts along the way. Staying objective and nimble continues to be the name of the game for traders in this type of tape.

If you are just checking in after the weekend, be sure to go back and see my earlier posts with more analysis.

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With the continued random, anemic price action, traps are present everywhere for longs and shorts, scalpers and swingers alike. As long as the bulls continue to defend, albeit in a weak manner, the 1357/58 level on the S&P 500 index and 2,900 on the Nasdaq, the bears are going to have a tough time aggressively shorting for any substantial period of time. Even with that at play, the bulls are looking at plenty of post-earnings blow-ups in CSCO and PLCN, just to name a few. In addition, the pin action to the downside is working in the cloud space, as I suggested CRM a way to play the RAX sell-off the other night.

When you add up all of those factors, that annoying heavy cash portfolio position alleviates an awful lot of stress of trying to force trades in a low probability environment. This type of a market has a knack for making even the most talented and veteran of traders press to force something to happen, instead of letting a better spot present itself. I also want to point out that plenty of 12631 members caught the nice move in PATK. This is a stock that neither @RaginCajun nor I were in, yet our talented members killed the trade in a tough market.

I am probably not going to make too many trades today. The bulls are going to need to put on a better showing than this, and so do the bears, for that matter.

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