Update of Sorts

Weakness and volatility unseen over the past month materialized in the indices yesterday. Since last week, I’ve been looking for the markets to lazily drift higher over the Passover holiday (with some opportunities in burritos) before shifting into a mode of distribution and subsequent May backfilling peppered with minor volatility spikes (nothing severe like August 2015 or January/February 2016). I’ve outlined this here and here.  I’ve also been looking for bifurcation in risk-on/risk-off assets regarding the DJIA/S&P vs. Nasdaq/Russell. Up until yesterday, the Russell has been a clear leader over the past week, before finally surfacing chinks in the armor to the retreating tune of over 1%. Even so, small bombs continue to pop on a daily basis, maybe the last fluttering and  twittering (no @jack) poop (extra @jack) rising to the top before we top in the intermediate term. The Nasdaq has faired the worst of the pack, while the DJIA/S&P look to be backing off their ascent to test ATH.

Within this context, I’ve been contemplating where to allocate capital in my swing/position trade account for the upcoming month. My initial thinking has led me to favor lower beta versus higher beta, but it’s too early to fully commit to this line of thinking with the Russell’s recent resiliency. In this account, I currently sit in ~50% cash and hold a mixed bag of positions emblematic of various risk appetites. (Note: Some positions in this account have overstayed their welcome and can be disguised as longer term holds, but they are really of the shameful bagholder variety. $TWTR from ~26, $LNG from ~45, $BZH from ~13, $TOL from ~34, and $SUNEQ from ~1.50.  Go ahead, point and laugh). Coming off a solid stretch of wins see spreadsheet, this week has been nothing short of a bumpy ride, and I can sense a shift in this market. Currently, I’m long some $TLT, short a mid-size oil player via $CLR, short $BETR, and long $SPWR (whacked yesterday off $FSLR earnings, although chart isn’t broken yet). I picked up a $DAL long on Wednesday that’s nearing my stop. I got stopped out of a $QLYS long Tuesday before it subsequently bounced back into its consolidation and ripped higher yesterday (before fading into the close). I contemplated these cybersecurity stocks as a potential tell on market direction, and whether this group will rollover or be the beneficiary of rotational capital going forward. And, I was stopped out of an $AMBA long on Wednesday, before it ripped back into its range by Wednesday’s close, and yesterday took out Wednesday’s high before fading into yesterday’s close. To sum this week up for me in one word: ‘frustration.’ To sum it up in one phrase: “something feels different.”

But I’m actively taking an inventory of market changes as they unfold: price action in various sectors/groups, volatility, the frequency with which breakdowns/breakouts stick or fail which translates into range-bound action versus trending, and how price action, news flow, and the narrative context of this market plays mass market engagement psychology and dictates positioning of bulls and bears. For me, this approach helps me stay nimble to pass in and out of technically manageable setups that may benefit from rotational capital. Throughout this multi-year bull run, the best setups have come from staying ahead of this rotational curve. Over the years, OA has demonstrated his genius at this craft, which is why you need his Boot Camp. I’ll be there.