The SP-500 finished lower for the ninth straight session following Friday’s session marking the first time that has happened since 1980. This market has made it a habit of pulling punches this year as the volatility and lack of trends has been beyond a nightmare for EOD trend followers. Its made for some excellent day and swing trades but for those investors that prefer to move a little more slow and methodical in the market it has been very difficult.
Unfortunately, with the previous nine sessions now in the books, I do not believe that difficulty is going to change any time soon unless this sell off now turns into a crash. We can rally here. Sure. My long positions would greatly appreciate it. However, without bigger corrections it is always going to be impossible to build the right foundation needed for leading stocks to setup in longer intermediate term patterns that then go on to produce huge returns.
During this past week CLR produced a final sell stop trigger marking an end to my longest held position which was purchased in February. I sold my final position in CLR with a near 150% gain. So, once again, I could not even get one year out of this position. Now granted it is always rare to hold a stock for over a year but before the funny money of 2008 started it happened at least 1 to 3 times every year 1996-2007. Since 2008 I have had only 2 stocks owned that have been held long enough for capital gains.
Then there are the returns. Go take a look at all of my Past Big Winners posted on this site from 1998-2008 and compare them to the stocks posted since (PBW section has not been updated since 2012). Take a look at those returns. Now take a look at CLR’s return. 150%. Not only are stocks trending higher in an easy-to-hold fashion but when they do the returns are nowhere near what they used to be. My friends, if that is a bull market, most people are going to absolutely hate it when the bear market starts. Unless you daytrade only. If that is the case, it’s irrelevant.
The point of this is that unless we actually do get some sort of a real bonafide crash or do get a real reset of 20%+ you can be sure we will continue to get more of the same price action that we have seen during 2015 and 2016. It’s a short term daytraders market and definitely not a trend followers market. The most logical and simplest explanation for this is that we are coming to an end of the 8-year “bull” market. Winter is coming.
The good news is that if we are going to get a November crash I (and every single member of Big Wave Trading) should be prepared at this point. I have a quarter of my portfolios in highly leveraged inverse ETF positions. Three quarters of those positions are in the money with the other quarter treading water ready to hedge against my remaining long positions that are still trending higher. If we do not get that crash, I’ll stop out of the hedges and, like I said before, my long positions will be grateful for any rally attempt.
If you are new to investing here the smartest and most prudent position in your portfolio right now should be cash. I am currently positioned with 30% of my accounts in long positions, 25% in leveraged inverse ETF positions, and 45% sitting on the sidelines in cash. That freed up cash allows me to daytrade potential earnings/contract winners and other momentum related stocks like the Marijuana stocks intraday and not risk anything overnight. The only “safe” trade right now, as far as I am concerned, is intraday. Anything overnight is at risk in a tape like this, especially during earnings season.
I know it sounds terrible but the best course of action here would be for the market to crash and for us to get this over with. A slow continued sell off would hint to me that we are heading for a recession. I guess that would put a halt to the Fed rate hikes but if we continue to sell off and they continue to hike you can be 100% sure there will be no escaping another recession. Even if the market bounces here with all of the short-term overhead resistance that has just been created you can be 100% sure that this market is not going to V-ramp back to new highs. If it does, just like every other time, it will fail.
The best course I can recommend heading into the new week is to be very cautious around this election. There is no way this is going to go over smoothly no matter who wins and that is going to probably cause some extreme volatility in the short-term. It’s going to be great for some potential short-term daytrading opportunities if the market gets a little wild but for EOD trend following traders its not going to be a very favorable time to invest so I recommend holding a heavy amount of cash on hand and making sure that any position you have on the books has a stop.
I have meticulously gone over every single current holding making sure I have my protective stops exactly where I want them to be so that I can make sure I either lock in large gains, lock in decent gains, lock in small gains, lock in tiny gains, leave flat, or lock in extremely tiny losses. Big losses should never be tolerated. Ever! But in bear markets they should be tolerated even less! Giving stocks room to pullback on the downside is what always turns small losses into big losses. I recommend that if you have not been already quick to cut your losses that you get with the program now before it possibly gets uglier.
If the market does decide to bounce here, with all that short term overhead resistance, you can be sure that any rally attempt will hit a wall of sellers at some point. What I will now need to see to believe in any bottom is for a bounce to start and then a retest of the lows to come into play at some point. If I see positive divergence in my RSI and MACD oscillators then I will be a happy camper and will look to start increasing the size of any new long position that triggers an entry signal. Until then, it is going to be thin pickings on the long side. My scans have deteriorated significantly the past two weeks.
OK everyone this has been an extremely long update so I am going to wrap it up here. Be careful heading into the election. Make sure your stops are on point and don’t allow any wiggle room to the downside in your holdings. Now is not the time to be stubborn. This is when it will cost you dearly. You can get away with being stubborn in an uptrend. In a downtrend it kills accounts. Be safe out there everyone. We are under a market wide operational SELL signal and it is going to take a lot of work to get us out of the SELL to NEUTRAL camp and back to a BUY signal.
Have a great rest of your weekend everyone. Trade smart and trade safe. Aloha.
TOP CURRENT HOLDINGS – PERCENT GAIN SINCE SIGNAL DATE – SIGNAL DATE
GRAM long – +104% – 4/1/16
HNR long – +85% – 8/25/16
MIME long – +84% – 7/8/16
AERI long – +77% – 8/9/16
GGB long – +52% – 7/13/16
DRV long – +43% – 8/2/16
XRS long – +39% – 4/13/16
CYBE long – +39% – 8/3/16
EBIX long – +37% – 3/17/16
APLP long – +30% – 3/31/16
QLYS long – +29% – 5/12/16
AOSL long – +28% – 6/14/16
