From the Trading Desk

North Korea Fears Reappear; Stocks Lower as Volume Jumps

Over the long weekend North Korea tested what it was believed to be a hydrogen bomb. While our intelligence community is busy verifying if this is true, the market was not so happy with the test. Volume jumped more than 25% across the board as investors and traders returned from summer vacation. Expect volume to trend higher now that we have passed the summer vacation season. Utility stocks were a bright spot on the session, but it’s a boring defense sector producing minimal gains. We need stocks moving much faster and higher than a high yielding utility. We provide safety through sound risk management rules and not by rushing to utilities and bonds. Not a great way to start the week. Historically, this is the worse week for stocks and we will need to see this market be resilient once again to power through a weak seasonal period. Your risk management process is paramount and it is where your focus should be right now.

An interesting nugget was found yesterday in our chat room. The S&P 500 has had 10 consecutive months of gains. Only 3 other times this has occurred since the 1950s when the S&P 500 came into existence. The last 3 times the average gains were over 26% the following year. Hard to believe when you have market naysayers squawking about valuations and how over blown they are. We recognize how over blown just about everything is when you have massive central bank intervention in markets. They create artificial buying propping up assets. At some point, perhaps this causes issues. However, for now we can only trade what is in front of us. Not the market we think we should have. If we do roll over and unwind what has been done since 2009 then so be it. Price will be our guide and we’ll take in stride. More importantly we will profit from it. Stop listening to the noise and simply follow the trend in place.

We continue to get new long signals even when the market has a tough time. This could mean a few things, but summed up it can’t be that bad if new long signals are still coming. We may suffer another day or two of selling, but if it doesn’t accelerate and take out key moving averages we should be alright. Our exit strategy is in place in case the market goes against us. Position sizing is just right to contain losses and maximizing our gain potential. Do not over complicate this and by no means make it any simpler.

We hope you have a great short week of trading!

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