BigWaveTrader has recently had a baby and continues to be bogged down by this responsibility. Therefore, I will be happily posting commentary tonight in his place. However, today was an extremely busy day and I do not really have time (this is already a late post) to hash it out again. I will post what I posted shortly after the close in my first update on the paid site. There are six new longs and an add-signal to an existing long for tomorrow morning. We are not pressing yet but we are dipping our toes further into the long side.
Shortly after 3pm EST the stock market began to breakout of its intraday consolidation zone and I sold the remaining EDZ EFU and TVIX long positions. These trades were reported immediately and time stamped on the gold forums and chat room. I am still holding PSQ (-1.5% loss) but that is obviously a full sell signal now. I took a near 4% hit in my accounts today which is near my max daily drawdown I allow before I sell every loser out. I avoided that drawdown today so still have all other positions. Back in the good old days before Fed intervention you used to only have to worry about big giants gaps caused by earnings. Now every day is a possible black swan for positions with the Fed interfering in once was a free market. There is no stopping them. They work for the banks and are drunk on power. This volatility is indeed going to lead to a trend but the current state of the market means that we must remain extremely careful and be extremely careful. Proper risk management, account positioning, and cutting losses fast must be observed in this environment. Now that we are back into a neutral position the max buy/short can be up to 5% but can not exceed that according to my risk models. We must get not only a follow-through day but a “buy” signal before any new long can exceed that. 5% should only be applied to the best of the best longs. As for current shorts, since most are not at the full cut loss level, it is wise to continue to hold them based on their current patterns. However, since we have dropped from a partial sell to a neutral signal the 7-8% holdings in each ex-general short must be paired back to 5% or less. Being extremely disciplined is the only way to survive this volatility here so that you can save your capital for the trending markets. I have studied the best. I have examined their records. All go through losing periods where their trending system methodology does not work. Some have serious drawdowns, some don’t. The thing to remember is that they all came back within a very short time. The appendix of Michael Covel’s Trend Following book is an excellent quick reference for statistics like this. Anyways, I’ll be right back with full analysis. Need to give the charts time to fully update on Telechart. By the way, volume was HUGE today and a follow-through day on volume equivalent to today would be uniformly extremely bullish. Considering how bearish everyone is out there on Europe and the world economy (including myself which gives the USA 0% of fixing its problems in the future) buying stocks as a contrarian does indeed make sense here. The charts in my scans off the lows and breaking out to new highs look very bullish. They need to tighten up some but the breakouts have volume and the BOP is very green on Telechart. Good signs if we get that follow-through day. We are looking for a 1.5% to 2% up session on higher volume than the day before. If we are up between 1.5% and 2% I want to see volume above the 50 day volume average. If we are up 2% it just needs to be higher than the day before. If the new CANSLIM quality leading stocks continue to show strength, along with the bank stocks and stocks off the lows in my BOP scan, then a full buy signal will be triggered off the follow-through day.
