As I watched the progress of the last 7 days vanish in just 5.5 hours, I wondered how many new longs were getting shaken from their high-horses. It seems most traders were able to identify a tradeable bottom- but they had a hard time actually trading it. Well, I’m making some assumptions, I guess. But it is easy to assume many have been unsuccessful as the chorus of longs chanting “Buy Buy Buy” grew to its strongest level on Friday, the apex of the bounce. How many traders put together a watch list of longs for Monday?
What makes trading during a bear market so extraordinarily difficult is that things always look their best when they are at their worst, and just when one thinks Armageddon is nigh, the light appears at the end of the tunnel. A bear market trader will have to be able to sell strength and buy fear, period. Waiting even one day for confirmation of a trend-change will result in missing the bulk of a move. It is not a market for rookies or for those who are not willing to impale themselves upon their convictions.
And so, it was, and will be, as it is today– did you buy today’s fear? Did you sell Friday’s strength? Truly, waiting for confirmation is murder in this tape.
Looking at the Nasdaq, it is perched precariously on a precipice overlooking a swift 100 point cliff. While IBD today says tech earnings likely grew 26% in Q4, you wouldn’t know it from looking at the chart. It looks like it could free fall, again. The new downtrend line added today shows the severity of the move down. If you did not get short on Friday or Monday, you have already missed a big part of the move.
Note that on the Dow Jones Industrials’ 3 Year Weekly chart above, the index completed a Head and Shoulder breakdown and just made its first unsuccessful test of the neckline. Observe the complexity and volatility of this top against the relative calm and order of the previous uptrend. This looks like a BIG top. Whether it will be or not remains to be seen.
More of the same on the SPY. A lot of open air down there. I mainly put the chart here because of the big ass bear flag. Or, maybe for longs, its a flag for surrender.
I included a chart of the VIX to appease those who keep noting bearish sentiment. Folks, this chart shows that Fear is ever-growing but has still not shown signs of a permanent peak. Investors Intelligence had Bulls at 40.2% and bears at 32.2% on Monday. That’s right, there were still more Bulls than Bears.
Finally, I haven’t put a whole lot of time in finding setups this evening because I’m assuming that those who have firm convictions have already positioned themselves. Also, after the last shenanigans from Bulk Shipper Ben, I’m wary of more “stimulus” affecting any new short positions. While if your thesis is to buy here, I can’t blame you. However, that is not my thesis, so I have no potential longs to examine.
Alas, I still couldn’t resist posting this joozey set up for [[DOW]].
nice.
Inside day today in bottom 1/3 of yesterdays range. Tomorrow, counter-trend thursday, the week before option exp fri … gonna be up hard to shake bears out before resumption of testing the lows next week.
Will the lows hold? Undercut & then one of those 5% rallies?
Great post. Thx.
Great post Shed. Yesterday I sold about 2/3 of my puts and inverse ETF’s, keeping the rest as a hedge.
Then I firmly impaled myself on the sword of my convictions for my long term portfolio by becoming an Asshat Dip Buyer of:
HNSN at 18.25
CPHD at 29.58
MMM at $79.29
PEP at 67.60
Perhaps stupidly, I also bought small amounts of NYX at 72.95 and FTK at 18.54.
Some of my other long term holdings are UL, MSFT, LOW, RIO, and a small basket of tech stocks, all bought on asshat dips of course.
I think I’m done now for a while and intend to stay on the sidelines (except maybe adding some VLO if the price is right) while this bearish market plays itself out. Hopefully I don’t bleed to death before it’s over.
Could be a dead cat bounce today, good trading to all.
Good stuff Boca.
I firmly believe that if your thesis is that the bottom is in, that you buy today.
I just can’t make that leap, yet. Although I’m still actively screening for breakouts and leaders.
Hi Shed, I don’t know if the bottom is in yet or not, maybe not, but I’m prepared to ride it out even if it’s bumpy for the next six months.
It will be interesting to see which sectors the new leaders will be in. I don’t have a feeling yet for where the strength will show itself.
No disrespect to the nice lady in Boca (my Mom’s in Highland Beach right now), but trying to “time a bottom” here is as asshattish as trying to “time a top” was last year.
Why not just let the market tell you when it’s okay to get back in? It’s not worth that first ten percent if you stand to lose another 20%.
Got to agree with Jake. Good holdings will get their heads lopped off as much as anything else if we have another leg down. Especially a protracted leg down that has you crying in your beer thinking how wonderful cash would be to buy the same suckers half priced.
Good luck boca, tried that (holding thru a bear) once before and I still regret it. Won’t happen again!
That Dow chart is scary man…
Great post.
-DT
“Observe the complexity and volatility of this top against the relative calm and order of the previous uptrend.”
best quote shed, so fucking true
FYI I don’t think this is the bottom at all, and I don’t think that I can tell when it will be or how low it will go. I am actually quite bearish right now. I will have no hesitation to sell any of these positions if I think selling is the right thing to do. However, I have a long time horizon and this is my long term portfolio not short term trading funds.
This particular basket of stocks is only a piece of what I do, I have two businesses plus real estate and cash, plus I can short term trade if I want to. I can afford to just let these sit while I work on other stuff.
I prefer to think I’m not wrong, just really, really early. 😀 I know you guys are mostly traders and I have a very long term outlook. I am learning how to become a better short term trader from all of you, but this particular post was just to share my long term picks, not to suggest any trades.
Damn Shed you got four “diggs” on digg.com for this thread, congrats!
Thanks again for these great posts Shed. I’ve really used them (and a couple other TA types) to not necessarily tell me what to trade, but to really begin to understand when i should be looking to entering/exiting positions based on my own ideas… very good stuff!
Boca,
Again, with all due respect, whether you are entering a position for the long or short term, you should not enter it if you believe there’s a good possibility of it going lower from here.
That’s simple risk management. It’s great that you have all those other sources of income and you don’t necessarily have to worry about trading losses, but why throw money away for no reason?
You’ve probably read “Reminscences of A Stock Operator” but one of the best anecdotes I remember from that book was not one of Jesse’s but one he had heard about Lord Rothschild in the last (19th) century. Something about “I have become rich not by buying at the absolute low, or selling at the absolute top, but by playing in that “safe 60%” zone between the two 20’s at top and bottom.”
That’s not the exact quote, but you get the idea…
Thanks for the feedback folks. I’m glad what I write is helpful. I really enjoy writing for ya’ll. Also, it helps me too.