SELL THE BOUNCES
We are now in sell the bounce mode in many places, the stock indexes, energies, currencies, meats. When situations like this arise the decision to make is always, is this a dip to buy or has the dip gone enough where you sell the rallies thinking the trend has changed. There is no easy answer to that dilemma that I know of and if I knew it I would not tell everyone. It would be worth millions so I would hog it probably. I would then write about it when I was 70 etc..
Everyone approaches the markets and the world of trading differently, and no matter who you are and how well you have done, you are going to have periods of sub par performance. Anyone taking Larry Williams new trading service is certainly well aware of this. Here he is one of the all time great who has made millions and millions of dollars trading, yet he has had a rough stretch in his trading service he just began offering. I have made many emails on this as if I have the answer as to how he has had a bad stretch. My answer is always the same as I field questions about whether to drop the service. When you have a method that you know has an edge or a person who has had great success. you bet on that method or system more heavily when it is down. You don't wait for everything to get better then start using it again. If you do that you have missed the whole recovery period after suffering through the draw down. Please set your emotions aside.
I find it ironic that the author of the End of America video is now very bullish on stocks. He was as bearish as could be for the last two years. Now that we are nearing all time highs again he is bullish? Good grief! Nobody ever gets it right every time, but you do have to learn to bet with the odds not with your heart. Buying dips beats buying rallies in every statistical study that I have ever done or read about. This will always be the case. If you subscribe to a service, have an uncle point, but until that point comes, bet a bit more heavily after down periods to catch the reversions to the mean. This is not brain surgery.
When to comes to the decision of whether to buy the dip or sell the rally, fall back on what your trading techniques tell you to do. Mine tell me the short term trend has changed, therefore I will look for shorts on bounces. If you are a longer term person, this certainly would not designate a trend change, so your method might be telling you to buy this dip. That approach has certainly worked fantastic for the last couple of years. What I have to deal with in my approach is that when these bounces occur sometimes they just keep going, the trend gets re-established back up, and I am not on the train until the first pullback. I know the benefits and drawbacks of how I trade even if I don't always like them. I live with them.
One of the best trades I know of is when this momentum indicator rolls over then we get a bounce against a declining line. This has not happened yet, but it does appear we are beginning to roll over here. It is best to see 5 or more down periods in the blue line in a row, then a bounce to set up this trade. We have not done that yet, we just have 2 down periods thus far. Keep in mind this can decline on up bars, it is based on a longer measurement of trend and momentum. You can be sure that I will be watching this to see if it sets up the way I just described. It does appear that things have changed. The PPT did not show up today for some reason, and we actually declined during rescue hour. Watching how the market closes is generally a good barometer of the short term momentum that is going on. Weakness into the close begets weakness, strength begets strength, etc..
I do like the way Oil looks to decline after a bounce. In this chart I have marked off the look I was talking about above in the momentum indicator. This market has been weaker than the stock market, so I expect it to fall more once stocks give back some ground. I also love the fact that the media and all the "experts" hopped on the bullish band wagon a month or so ago. That had top written all over it. I even sent in a chart to Bill O'Reilly after watching Lis Wiehl embarrass herself telling us all the oil companies were buying gasoline futures. The COT report of course showed they had the largest short position on record at the time she said that.
Talk about a Pinhead! Unfortunately some people listening to that probably went out picketing oil companies the next day not knowing she was as wrong as anyone has ever been in the history of the world. I got no response of course. I wonder though if they checked into it, found out what an erroneous report that was and quietly sneaked away from it like Carl Spackler in Caddyshack at the end once he set off the dynamite.
It does appear we are about to get some good action.
No trades for tomorrow