Island Time Ahead?

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  • on June 25th, 2010

“So don’t treat me like a puppet on a string

‘Cause I know I have to do my thing

Don’t talk to me as if you think I’m dumb

I wanna know when you’re gonna come…soon”

Bob Marley, Waiting in Vain

I don’t study markets to predict…I do it to profit.  Market analysis is an important but small fraction of what it takes to succeed.  I discussed earlier this week how I proceed from a concept to a trade.  These concepts have become key to getting through the stalking stage so eloquently defined by Van Tharp and Hank Pruden.  To this day, I need these 5 steps to suppress my urge to rush out and take advantage of my new ideas.  Brian Shannon talks about waiting for the alignment of multiple time frames, and we just don’t have it right now.

The tape continues to be a mess, or in technical terms, a negative feedback cycle that traps people at both ends of the range.  A week after noting 5 emerging bull setups, we see 4 of them not only failed to trigger but proved so weak they’re back to no trend signal.  Given the individual apathy towards the action, we run the risk that the professionals trading the market tire of the randomness and spend the next 2 weeks beachside.  Thankfully, opportunities will abound as we step out of this macro focus and enter a micro focus during the July earnings season.

I have no problem admitting how confusing I find the market right now.  As I stated here just after the Flash Crash, prices over just about any time frame are in balance, meaning you have to pick around the edges to make a buck.  That’s not my style, so I sit here patiently doing the same routine I always do, waiting for the inevitable low risk entry to come around.  Of the 43 ETFs on the graphic above, only the U.S. Dollar(UUP) has the combination of being in a state of trend and acceptable risk/reward as noted by its “value area”…the price from which I can estimate a 2:1 reward/risk.  In order to buy, I’d need to see it showing strength on a day the S&P is trading up…precisely what we haven’t seen out of the greenback in recent weeks.

I don’t mind being surprised by markets, but being caught unprepared is unacceptable.  Markets provide opportunity when we least expect it, so I’ll continue to filter gloom and euphoria and focus on the facts as only the market can deliver them.   As John Maynard Keynes famously noted, “When the facts change, I change my mind. What do you do, sir?”.  My plan is to preserve capital and mental energy while maintaining an openness to new information.  Yours?

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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