Ever since the market made a temporary low last week, we have been in a highly volatile consolidation zone just under the 200 day moving average on the S&P 500. Naturally, you would think that just about all traders would be fearful of another sharp leg down, and thus would be reticent to put on any long positions in the past few days. That assumption would be wrong.
One of the most capital destructive fears that traders have is the fear of being left behind in the dust, if the market suddenly sprints higher on a new bull run. It should be obvious as to the reason why this fear of being left behind is far more destructive than a fear of a downturn: The money you allocate to buying longs in anticipation of a move higher can easily be wiped out, versus a risk averse strategy in anticipation of a pull back of sitting in cash or putting on hedges.
The setups that I proffered last night looked enticing and actionable, when seen through a vacuum. Unfortunately, most stocks in the market do not trade in a vacuum. They are subject to the machinations of the broad market in such a way that you had better respect the movements and trends of the senior indices, before you become aggressive with any individual issue. Thus, I felt compelled to note that we needed to wait and see confirmation before allocating capital. Indeed, we have seen anything but confirmation to the upside today, given the huge selloff.
With the continued news driven price action to the downside, the market has yet to convincingly given us swing traders a reason to get involved. As frustrating as it may seem to sit in high levels of cash right now, it would be wise, instead, to think about the better opportunities that we will see down the road, once the market firms up and is done shaking out the weak hands. When things are going well, the market seems like the easiest game in town.
However, it is the patience and discipline shown in markets such as the current one, that truly distinguishes the traders that have lasting power in this business.
NOTE: Bear vs. Bull today:
[youtube:http://www.youtube.com/watch?v=rm81LSKJC2k 450 300]
Always like your writing chess.
Do you have any open positions or made any trades in last 2 weeks?
No trades the past two weeks. Still in 100% cash. How about you?
Thanks for reading.
i got stopped out of some puts .
I should have listened.
You and your boss and ibc colleagues are helping a whole lot of people during this season with your measured approach and teaching by example.
Thanks. iBC and the PPT are the best.
Indeud. It’s funny to read the haters over on Fly’s blog. I guess reading blogs is just like reading the market — people see what they want. This has been a very good time to improve one’s trading skills, as the market has provided us with the entire spectrum of conditions within the space of one year.
FCX just to new low…
Well said Yogi. I agree completely.
Looks like max klinger from M*A*S*H
Not trying to suck your dong or anything, but you are really adding value at iBC. Glad you are “tabbed.”
thanks moobs really appreciate that
Thanks chief! your blog has been capital saver for me. Fears and greed are inter-changeable, they work in pair, trader’s biggest enemy, they always try to come back for a visit, block them!
Unless you are willing to short or trade inverse ETF’s, you may as well stop trading all together. I am afraid you won’t have any opportunity to trade again for quite sometime, as this summer looks like it is leading us to another 08 style fall.
I’ll look for short exposure when I see a better entry point.
Great call on FCX boss.
Thanks Moose. My best setup from last night was UUP. I had a feeling…
that’s Robert DeNiro you …….!!!!
Yes, I am aware of that.
I’m refering to the comment from Rand. No offense to you. You think we get a Dead Cat bounce in the last hour?
ha–oh, pardon me. Rand is the man, and a character.
If I had to guess, I would say we close on the lows. But that’s more of a novelty at this point for me at least. I suspect a lot of guys are already on the beach.
I will say that the selling could be far from done next week if we are breaking down below the bearish wedge on the S&P
I look for the comedy in everyday life, finding it whevever i turn. Come on, laughter is the best medicine!
Keep doing what you’re doing, Rand. You’re the man and I really appreciate you stopping by and visiting my posts.