Major market averages sold off on Friday on lower volume across the board. Along with the lower volume, major market averages staged a decent rally off the intraday lows, mitigating the damages from the intraday session. However, for those that want to see the market hammer out a bottom here, higher volume with that reversal off the lows would have been much more convincing. As it is, stocks had a very rough week with Thursday and Friday’s sell off causing a lot of damage to leading stocks.
The selloff on Thursday and Friday has reduced my long exposure to only around 55% while our cash position has grown to around 30%. Our current short position is at 15% on 3x leverage. As you can clearly see, based on our exposure, the market appears to be undergoing a clear trend change. It doesn’t mean that it will happen but our long positions do not look very healthy and our trailing stops are getting very close. We will need to see this market bounce soon or else we are going to have more capital in cash than in long positions sooner than later.
It is always possible the market bounces here and sustains a move to the upside. Unfortunately, my internal momentum oscillators do not confirm this hypothesis so it is safe to say this is a very low odd event. More than likely, any bounce will have very limited upside and further selling should be expected. This is the much higher odd event based on seasonality. August and September are the two worst months for the SPX going back to 1950. This is not the time to be bullish when price is not confirming that point of view.
The biggest problem I have with the “we are near a bottom” talk is that while the market has trended lower setting lower highs and lower lows since June, the VIX has failed to move higher at all. In fact, the VIX is following the trend of the RUT since June, setting lower highs and lower lows, which is the exact opposite of what you would expect to see in a falling market. This tells me that traders are becoming more and more complacent as we sell off. This is the exact opposite of what you want to see for a potential bottom. There is no fear. When there is no fear, there is no “bottom.”
Another hint that Friday was not a key reversal day is the fact that we have no new long positions for Monday and even more concerning I did not flag any stocks as potential longs. Only the Utilities interested me and it was more of the group move (XLU VPU) rather than the individual stocks that were noticeable. The majority of the few stocks that you do see listed below (this list is for MEMBERS ONLY) that still have “good looking” technical patterns are in defensive sectors that do well in downtrending markets. I definitely do not have “good looking” technical patterns in industry groups where innovative technologies and huge EPS/sales growth are the catalyst.
As long as the tape’s price action continues to act as it is and we remain in the months of August and September, I will continue to exercise restraint and continue to recommend you do the same. We did have one new long position trigger on Thursday in the Oil/Gas-Refining/Marketing sector and it did work itself higher on Friday. So it isn’t like there isn’t anything moving out there. However, I would expect it to be slim pickings for at least a couple of more months.
As it is, now is a great time to take a vacation or spend some time reviewing your past trades and/or furthering your education via various reading materials. Have a great weekend and upcoming trading week. I’ll see you in the chat room on Monday. Aloha.
TOP CURRENT HOLDINGS – PERCENT GAIN SINCE SIGNAL DATE – DATE OF SIGNAL
ANAC long – +311% – 1/20/15
SKX long – +155% – 1/26/15
PAYC long – +114% – 10/30/14
CBPO long – +113% – 10/24/14
TREE long – +97% – 6/2/15
EGRX long – +86% – 4/9/15
VRX long – +81% – 11/17/14
EA long – +77% – 11/10/14
ADPT long – +75% – 5/18/15
DXCM long – +68% – 4/2/15
PANW long – +61% – 11/10/14
BLUE long – +60% – 2/25/15
NFLX long – +52% – 5/5/15
AMBA long – +51% – 5/14/15
FIX long – +49% – 3/11/15
AVGO long – +45% – 10/28/14
SERV long – +44% – 11/7/14
AMSG long – +42% – 2/26/15
ABMD long – +40% – 7/10/15
LHCG long – +38% – 6/11/15
AYI long – +36% – 1/23/15
AMZN long – +35% – 2/25/15
AVOL long – +32% – 4/21/15
COKE long – +30% – 6/16/15
SUPN long – +30% – 5/22/15
SRNE long – +28% – 5/18/15
INSY long – +26% – 6/3/15
FCB long – +26% – 5/11/15
ULTA long – +26% – 12/17/14
TILE long – +26% – 3/12/15
REGN long – +25% – 4/21/15
