Leaders Want a Break

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  • on April 6th, 2011

No alarm bell to sound, but prudent risk management says watch the leaders.  If they stop leading, it is a sign of change.  Well, in my work they just stopped leading.  This is very short-term, but these days the slightest ripple bears watching for its effects elsewhere.

I consider these stocks the alpha dogs, and I like to measure the median stock from this list against $SPY.  It’s too easy and misleading to sit here and point to weakness in $AAPL or strength in $GS and “call” the market based on those data points.  But if things shift broadly enough to move half of this list, I think it’s significant.  Sorting the columns, I get $RL or $APKT in the middle for “% Range” and $XEC or $NFLX for “ATR from Hi”.  The following graphic is admittedly archaic, but with limited time this is the best I can do:

The two columns with color coding measure the progress since the last important trading day, defined by me as March 29.  That was last Tuesday, when we gapped lower after a poor close on Monday.  There was a ton of worry(or hope if you were short) that the bounce from March 17 was ending, or at least pausing.  After 10AM we ripped higher, gapped up the next day, and filled the street with regret for not buying more.  Not only did the Leaders List tip its hand that day by moving higher before the index, but not for one minute since has the leadership been questioned.

Until now.  It seems ridiculous to build a bear case on a 30 minute change in structure.  And I’m not building a bear case.  I’ve only measured this for a few months, and incorporated it for a few weeks.  Even at that, my execution has been wimpy because I don’t have years of data behind it.  The point is, the implications so far have been for a multi-day shift in tone…enough to warrant trimming exposure on a negative shift and adding on a positive one.  There’s no magic here,  just an objective way for me to measure what my portfolio would tell me anyway…the ones that were going up just kinda stopped going up.  That’s my story, and I’m sticking to it until I don’t.

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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