Waiting on Thrust

  • Posted by
  • on May 25th, 2011

Not much to say, the market is still languishing.  Don’t care much about that; what I care about is the lack of an overdone spike to at least set up a low risk/high reward swing.  Could have saved myself a lot of work following “Sell in May and go away” as I’ve been working harder than ever in search of a great idea…I’ve yet to find one.  My latest moves had me buying tiny positions in $MAS & $CF to replace the tiny positions in $PRU, $SHW, $CROX, & $NTAP in which I was stopped out with losses.

What has been missing, and what has thankfully kept me from doing any damage, is thrust.  Something to show aggression by one side or the other; by my count, the last real thrust was the rejection of the Bin Laden high.  The bears have remained in control since then, but without overstaying their welcome.  We had a little lift off of the May 17 AM lows, but by the time it threatened the bears it fizzled.

So I’m trapped in my head between a downside thrust that feels old in time but hasn’t moved price that much.  I continue to get more technical candidates on the short side than the long…last night’s initial set of screens knocked the field down to 41 bull tickers and 115 bear tickers.  I’m obviously not active in that many, but use it as a gauge for how aggressive I can be.  And how much of a hedge I may need, as I find it logistically more feasible to buy stocks but batch the shorts into an options play using ETFs.  Those numbers are awful and getting worse each day, remarkable since I include a risk:reward & a couple of mean reversion filters in producing that batch.

What I need to see is more emotion.  Give me something other than bouncing along the bottom.  Ideally, we’ll get a large enough selloff that a stretched rubber band paves the way for a multi-day rally of more vigor than we’ve seen.  Alternatively, enough broad strength to clear recent resistance and leave a majority feeling regret for not having bought more in the hole.

Even if we’re not short, it makes sense to consider what type of thrust is enough to scare a short into covering.  I don’t let myself lean one way until we’ve reversed at least 1.5 true ranges from a recent low(or high, for that matter).  This can be tracked using $SPY or $IWM, but since those indices are so widely gamed I like to use the median stock in my universe.  As of last night’s close, that measure sits at a paltry .79, better than $SPY but still demonstrating a total lack of other timeframe buying.  To put that in perspective, $SPY and the median stock sit over 3 ATRs from recent highs so clearly the bears are still in charge.

I sit here a little pissed that I didn’t spend more time away from the screen in May, but that’s hindsight.  I do the same thing every night and every morning in creating my plan; any abrupt change and I can’t tell if it’s my plan or the market’s plan that’s out of synch.  I love this plan put out by Zortrades, but I’m not there without a change in the tone(better or worse).  It continues to be small test positions in stocks with bull characteristics, with hedges coming into a panic OR evidence of reversal from a low.

 

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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