Today Means Everything, Today Means Nothing

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  • on April 27th, 2011

A trap in which I’ve fallen over the years is placing too much emphasis on every day of stock action, every hour, every minute.  Where I’ve improved(but still need work) is to distinguish between a special day and a ho-hum day, hour, minute.  The cornerstone to my approach is to identify the abnormal days and use them as signals; each “normal” day from there is irrelevant unless the passage of time adds up to its own signal.

The point is, each day IS NOT the same.  It’s like deep sea fishing…a whole lot of nothing with bursts of chaos breaking up the pattern.  Tuesday was different than other days, as the other(longer) timeframe revealed its power by steamrolling swing faders(myself included).  It took me about 10 minutes to realize I didn’t need the hedge, a couple hours to act on the realization by taking the loss on $BGZ.  A hedge trade should be the easiest loss to take, since it’s just an emotional crutch used to protect against the “I wish I’d sold something into that” type of regret.  But sometimes we need reminders that every trade brings the potential for regret, so accepting rather than anticipating evidence is the best approach.

The temptation is there to throw caution to the wind and embrace the break of the 1275-1335 $SPX trading range.  Even using the fattest of crayons as described in this great summary from J.C. Parets, yesterday looks like a clear escape from the mid Feb to mid April chop.  It’s not the breakout that matters, but what the aftermath revealed about market structure…initial skeptics like myself that thought it might just be a run on the stops were easily absorbed.

I won’t be a buyer today, unless a smaller cap emerges with relative strength in a weak tape.  Large caps haven’t had a whiff of selling since gapping higher last Wednesday, and I can’t identify a low risk entry without at least an intraday selloff to the rising trend from the 4/18 pivot low shown below.  The Fed could be a game changer today, but any gaffe by the Bernank should simply be a chance for institutions to add exposure.  As always, the evidence will dictate my actions…my job is to manage the game one day at a time.  If we exceed Tuesday’s highs and don’t get an expansion in the number of stocks making short-term highs, I’ll act again to hedge risk ahead of the big, bad event.

I find it hard to be bullish up here, until I look at a chart and realize just 4 sessions ago we were trapped below the widely-followed 50 day moving average.  That gives us plenty of time for an underinvested public to get more involved, as 1)doubt and 2)fear of underexposure now replace worry as the driving emotion.  Technical levels may get Wall Street interested, but it’s the continued blowout results from heartland names like Ford and 3M and Cummins Engine that will motivate Main Street to shovel money back into stock funds.


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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