The trading action on stocks that I have been following has definitely changed character. The stocks have been taking on a more bear orientation in their behavior. This is what is important to watch. In this market, by the time you see that it is "officially" a bear market, it may be too late for you to adjust your position as a short term trader. The longer term trader may look to this market as still a bull market, but a deteriorating one at that. IMO a short term trader must focus on the present. The broader picture can help to provide context to interpret what he sees in the current market, but also he must know when to not go with what the longer term view is telling him, and to learn to anticipate market turning points.
Why expose yourself to unnecissary risk? As you know there are times even during a longer term bull market that provide a substantial increase of risk particularly to the short term traders. So it is important to know when to trade and when not to trade. Also if choosing to trade, it is important to know when the old approach is not working because the market has changed and to adapt to the market. This is one thing that makes short term trading much more challenging than investing.
Look at PHYC as an example of a stock that trades as though it has been a bear market. Pervasive negative sentiment determines how the stock will respond to news or how it will respond if it were to move to higher prices. This stocks lately has been floating down, moving up to encounter selling, and floating down again. Just when it looks like it has made a bottom, it end up moving past that bottom to make a new bottom where it trades for awhile. Moves up are opportunity for additional selling. Positive news is an opportunity for selling. I am seeing some of these distinctive characteristics with the market and the stocks I have been following in the current market which is evolving to a more pronounced form.
For instance, look at what happened to GM which popped on the good news about the strike. The very next day it went back down. INTC seems to be taking that course although a more slowly since the technicals of this stock are still good. The novices are getting a little nervous in the high flyers that have been helping to hold the market up, and I have been seeing more conviction behind the selling in these stocks. Even though the A/D has improved, the new highs to new lows are what needs to be closely followed in a down market. Last I checks, it was a ratio of 1 to 10, that is for every new high, there were 10 new lows. Quite a disparity here.
So I do think we are seeing a "slice" of a bear type of market in the trading action of many stocks, so trades should be placed accordingly. This condition is broadening instead of disappearing. I do not know yet if this will turn around or continue down to become the real thing yet. But tomorrow should tell us something about this. However, the current trend is down.
Bob Graham |
