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

Comments »

The 1357/1358 level on the S&P 500 has proved to be firm support over the past month. Today, we are finally seeing the bears crack it with a swift move lower in the market. At issue now is whether we see a similar type of false breakdown like that which the market experienced back on October 4, 2011. Many indices, including the S&P, and sector daily charts are now pierced below their respective lower Bollinger Bands, usually an indication of some type of oversold condition. However, in and of itself, simply becoming oversold is not a sufficient reason to turn bullish or even play for a tradable bottom.

Instead, the idea is to continue to let the dust settle in this ongoing correction. There is still little evidence that we are entering a fresh bear market, although that may come down the line. Rather than getting wrapped up in a game of semantics, I have been more concerned about being properly positioned during this correction with a focus on protecting capital and picking off high probability trades here and there. Overall, the momentum winners to the upside for the first quarter of this year have been cracking in recent weeks. Over the past few days, some of them are starting to roll downhill now. When this happens, there is usually little point in trying to fight the tape, since the tide has turned if only for a few days or weeks.

I came into this morning’s sell-off positioned net short, with a heavy cash position to boot, all catalogued inside the 12631 Trading Service. We have been in rhythm with this market all year, and the only thing standing in our way from continuing to outperform is complacency and becoming sloppy with trades.

You can be sure there will be plenty of traders looking for a bottom as today’s session progresses. I am not interested in calling out a bottom yet, as my sense is that there are too many traders still holding and hoping rather than shaking and selling.

Comments »

 

_______________________________________

Back on Monday, I wrote the following in a premium blog post for 12631 members:

Think of this market like a fencing duel. We are looking for opportunities and will attack when we see it, but we will also be extremely quick to pull back if not proven right within a few days.

Since then, we have largely seen a sideways market that had us closing at the low end of this week’s range on the S&P 500 index. As I discussed on my video recap for Thursday, there are some areas of the market acting well (real estate, homebuilders), while high momentum leaders like CMG LVS SBUX V all look heavy and vulnerable. The bulls had regained the initiative last week from the bears’ failure to capitalize on a bear flag breakdown, but into tomorrow morning’s jobs number we have the makings of a range-bound tape. As usual, I am not interested in the actual government data itself but rather the market’s price reaction (to the initial reaction pre-market).

I am proud of our recent wins inside 12631, including taking gains into the AEO and MNST spikes earlier this week. Many members are also still long DFS since the mid-$20’s back from the winter. On Thursday, I was willing to take a few small losses in exchange for a heavy cash position into the market’s reaction to the jobs number on Friday and beyond. I even initiated a new short.

Going forward, I am intensely focused on not becoming sloppy with my trading during the upcoming summer months. I am just as willing to become net short here as I am to go back to an aggressively long stance. It all depends on what the market wants to do and how it reveals itself. I know that sounds very reactive, and it is. Whereas the beginning of this year represented a period in the market where I was willing to be bold and take on all comers with an aggressively bullish disposition, this time around I am approaching each and every skirmish ready to attack and retreat when necessary.

For now, I am jousting and semi-retreating.

 

Comments »

______________________________________

Despite getting stopped out of one long position today inside 12631, the market is still largely digesting its rally higher last week. The bears have yet to be able to crack the low-1390’s on the S&P 500 index, and until that happens I am reticent to go back to 100% cash or look for swing shorts with any sort of a vigor. Most stocks on my screen seem to be off no more than 1-2%, indicative of digestion. I also see that the real estate ETF, IYR, is green, while the transportation stocks are hanging tough overall. The market rotation still appears to be playing out.

With that in mind, I am not getting too worked up over today’s softness. Once again, if the bears are able to get any sort of downside momentum going, then I will be more inclined to play tighter defense. For now, I am still wading back into the market in a methodical manner, with about 60% cash at my disposal.

Comments »

_________________________________

A hot hand in a slow market never hurts.

In addition to locking in 20%+ gains on MNST‘s huge pop on Monday, today I am seeing my AEO long moonshot over 12% after surprisingly upping guidance (they reported earnings back in March). The rest of my holdings are either in the green or down less than 1%, not bad considering the softness in the broad market. I already took some gains into the AEO pop into the 12631 Trading Service, where all of my trades and holdings are on full display at all times for members.

As far as the rest of the tape is concerned, the S&P 500 still looks to be digesting last week’s push above the low-1390’s. I am keying off that area as a measuring stick for the short-term health of the market. However, the weakness in the Russell 2000 is starting to become a real nuisance to the bull case. The buyers had better step up one of these days, or we will actually have a confirmed head and shoulders top on the daily there, which could get ugly and end the fun we have been having with select longs.

In sum, I have a hot bat and am hitting some doubles and triples in addition to my usual singles. The temptation is to now swing for the fences and hit for the cycle via a monstrous home run. While I am always looking for a big win, I am not going to stray from my discipline go down swinging wildly out of giddiness.

Comments »

____________________________________

We are headed into the infamous choppy summer months of trading, so there seems to be more than enough caution out there amongst the entire trading community. The month of April proved to be largely a consolidation for the market, with some sectors and stocks getting hit more than others. With that backdrop, my focus is even more on sticking to the price action and my general trading discipline. I do not consider it a foregone conclusion, by any means, that we have neither topped out here nor are off to the races higher.

The recent pullback in the semiconductors had them finding support right where they were supposed to, not only at the rising 20 period weekly moving average, but also at the major support trendline dating back to the October 2011 lows. The presumption is that these lows will hold, and that we have just witnessed nothing more than a bull correction. That opinion would change, however, if the SMH, ETF for the semis, lost $33.

In the meantime, the market has responded in a way that is pleasing to the bull case. As an example, I wrote about SWKS impending correction back in March as likely a sound buying opportunity in this post. Since then, the stock pulled back from roughly $29 to $23, and then printed a massive weekly bullish engulfing candle to close out last week’s market reversal higher. In addition, members of 12631 can check out a great seasonality play from The PPT for the month of May in our chat room tonight.

____________________________________

____________________________________

Comments »