. . . . . . . . Stock Pickers Trading Range Light Summer Bear. . . .
The Past Week As an Indicator
Carpe, the Naz, NDX & Dow all ended the week down 1%. . . up, down, down, up, up [or something like that]. . . with little conviction either way. I see no early indication that we will have a hot summer market, nor do I see any that we'll have an exceptionally cold one. But then, we might just be so caught up looking for strength or weakness that we are overlooking the real read.
I believe the markets are all in a trading range. I believe we will test recent lows, but not necessarily the lowest lows. . . on the COMPX we've set three higher bottoms since the big one. In my opinion, the sooner we calculate where the extremes of the trading range are. . . the faster we should be able to profit from our knowledge. Remember when we sold our GLW just under $200? That's what I'm talking about. . .by the end of the week it was back to $180.
Buyers are anemic. . .perhaps still shell-shocked. . .but then sellers are weak as well. At this point, there seems to be little pressure on the sell side. . .but too few buyers to make anything happen.
Typically, the lower volume would indicate a bear market. But there are certain stocks that move against the flow on down days. . .and soar on up days. . [unfortunately that list changes daily]. . . .If I were to give this current market a name it would be, a "stock pickers trading range light summer bear."
Friendly Bears?
But I think the "different" part you are sensing is that this bear is fairly friendly. There is little teeth to any of the selling. . . unless downgrades accompany a stock or sector. Then it quickly turns vicious toward those stocks. . .[an action worth taking advantage].
So many stocks were taken down to extraordinary lows that it has set up mass bargains within a light bear market. In other words, we are picking our beaten down winners and playing them off their bottoms. . .like you are doing with LPTHA. . .despite the bear. When MMPT dips below $15. . .there is an army of buyers. . . then when it hits about $19 the selling resumes. ADAP has been tradable from about $25 to $34. . . [as I recall, using memory today not charts so I could be off some]
Volatility
Now the higher fliers are behaving differently. . . they are closely tracking the Nasdaq. . .which has been led by the NDX. The Naz keeps going its own way, then the Dow goes into convulsions and has a fit until the Nasdaq turns and begins to follow along. . . which so far always leads to a down day. . . when the Dow stabilizes and does not move erratically, we tend to have up days. . . [basing all this on this past extra low volume week]. Watch the market turns closely for indications on when to move on volatile high fliers.
My "most volatile" 40 or so stocks that I've been watching nearly a month. . . have been an excellent indicator on what is happening. . .when the Naz is strong. . .nearly the entire list is green. . .with a steadily decreasing number of reds. . . but when the Naz turns weak. . .like after the Dow starts into its gyrations. . .up and down. . .you can quickly watch as the majority turn red. . and within a matter of minutes see only a half dozen still green.
Incidently, these most volatiles have been great swing traders this past week. . . provided your eye is on the market direction. . .because they track it extremely closely.
Strategies
So I guess I'm seeing the following potential plays in this current trading range light bear market. . . .
1. Position trades on good beaten down techs [and most stocks in general] moving in a trading range. . . time frame is between 2 and 10 days.
2. Swing trades on "most volatile" stocks based on market direction . . . staying long on good days and short on bad ones. The best swing trades seem to last about 24 hours on average. . .rarely over 48 hours.
3. Daytrading or scalping these "most volatiles" also based primarily on market direction. . .one eye on the Dow and NDX. . .the other on the trigger.
4. Not much left for buy & hold or short & hold traders.
Lets start THINKING like we are in a trading range within all markets. . . and plan our trading accordingly. I want to hear TA evidence of solid bottoms and near-term tops on only the very best companies, which have a good stream of favorable news. This is where I believe we will find our best plays for the summer. . . .or at least for now.
The Summer Could Change. .
We should see a brief relief rally on the FOMC meeting. . .we could actually get quite strong. If so, we need to watch for signs of NEW highs to our trading ranges and adjust accordingly.
Chances are strong that we will get a quarter point this week and another quarter point in June. . .however, following this 2nd meeting we could see some serious strength kick in late June heading into July earnings. . . tho' I believe we sell off sharply before this earnings season is complete. . . only to settle back into the trading range we know.
So the only question left to answer is this. . .will we see the super low prices this August/September that we saw last year? Last year we had a bear market that lasted about 6 months. So far, I'm not seeing this summer setting up in the same manner. . . so I would not bet on seeing those ultra low August/September prices. This is why we grabbed the bottoms over the past few weeks. . .just in case this was it.
Last year we saw a sudden burst of buying activity in volatile stocks in the final days of August. . .then more of the same after Labor Day. . .but slowly increasing volume throughout September. Stock prices hit their lows sometime in Aug/Sept last year. However, I don't see that happening in the same manner this year. Why not? Nothing has been similar to last year.
Predicting September Rally
This year, I predict we will actually see a September rally, based on the following. . .
1. Historical moves happening weeks sooner each year. .
2. Increase in buying volume happening at a time when bulls are not as drained out and weak as last year. . .
3. Gut level instincts. . .
4. Excitement over presidential election getting close.
5. Lack of fear over interest rates. . .and just plain lack of fear.
At this time we could finally test the highs. . . and I believe such a rally could have some impressive strength. . even on moderate volume. . .not heavy. However either on the final day of September or the first day of October. . .I believe we will reach a pinnacle that is worth selling all our near-term plays into. . .
As the big boys return to play in October, I believe the wild volatility will return. . .I think we'll see our new highs quickly shattered by severe selling and new short-sell positions. . . not necessarily a crash. . .just about 4 or 5 days of triple digit declines across the board. . . October 2, 3, 4, 5, 6? Followed by a sharp tradable rebound.
And once again, the minute we see the selling slow down. . .we jump in with our fresh profits and buy "only the very best" stocks at their new near-term lows. . . but this time based on the what we have learned all summer about the trading ranges of our favorite stocks. . . the rest of October will greatly depend on how Yahoo and Intel report the second week of October.
Cloudy Crystal Ball?
After this time, I'm not sure. . . do the bulls take over control during October? Or do we wait until November. . .after the election? Do we get a repeat of last years extremely odd Christmas/New Years bull rush? Or do we wait to restore January to its throne as the king of bull markets? When do the bulls step back to the plate? That is the next big question.
I believe at this point in time, it is a flip of the coin. . .but once we get through the first two weeks of October, things will probably become more clear.
But one thing I am sure of. . .and that is that volatility is going to only increase as we move forward. . .we will see higher highs, lower lows and wilder swings in the indices. We need to discuss how we can use volatility to our favor. . .and which indicators give us the most reliable data on predicting it and reading its effects on the indices.
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I'm stopping here. . . much to think about and discuss. . . as always, I'm open to hearing opposing views. No, I'm not off my rocker. . . and I didn't lose my marbles. . .I do make market predictions many months in advance. . . so what?
Disclaimer
Note: Do your own due diligence and make your own trading decisions. . .consult financial advisors, tax advisors, technical analysts and those you trust before making any moves with important monies. . . do not rely on just one source of information. I am not a licensed equities advisor [tho anyone with info on how I can become one, please send. . .SEC is getting weird these days. . .going after the little guys. . .and ignoring the real criminals. . .the leading brokerage houses]. . .
Best wishes to all. . .
Rande Is |
