Thursday’s attempted bounce did not last long as stocks sold off hard across the board on Friday on heavier volume adding yet another distribution day to the overall market. However, despite the sell off, there were some bright spots overall. The Russell 2000 and DJ-Transports both showcased Relative Strength compared to the overall market. The market also undercut the Thursday’s lows and then managed to rally back into Thursday’s price range on all the major market indexes we track except the NYSE. It may not seem that impressive but the price action on Friday is further indication that the market is more than likely in a bounce zone around this area.
On top of the price action, our sentiment surveys and put/call ratio look a little extreme on the short-term so a bounce next week or even over a few weeks is not out of the question here. The issue is going to be volume and leadership. The current leadership is mainly defensive related names with Utility related stocks really starting to take a clear leadership role. This is not the type of leadership that leads to long lasting sustainable uptrends. So this is just another reason why we should expect a choppy bounce here and not really much else.
If volume returns to the market on the uptrend, and new leadership in innovative growth companies appears, then we will look to increase our long exposure. As it is right now, the quality of signals are lacking and the returns from the few pokes we have made during this downtrend on an EOD trend following basis, to no ones surprise, are not working out. It is a market that is rewarding those that short climatic runs or go long early morning spikers like we have seen lately in a few names intraday. However, the smartest play for most traders will continue to be cash. Shorting on an EOD basis in this tape is still very tricky and dangerous due to the volatility and illiquidity in the overall market.
Our best advice is to continue to focus on our pre-market watchlist and biggest percent gainers pre market each day and play those names. Low priced stocks continue to be hot every day with RCON, ICLD, and CDRB being three in a row last week. These stocks draw in degenerate gamblers which can lead to amazing early morning price moves that are going to occur rather we are in a bull market, bear market, or do nothing market. Gamblers are gamblers and professional speculators can game it. Right now, it is the only game working. EOD trend following is currently dead as the market is trendless overall, even despite this January sell off. From 10/14/14 to today, the SP-500 is down about .10%. Exciting!
Enjoy the rest of your long holiday weekend. Focus on those low priced “penny stocks” for early morning spikes. Nothing else is working. We will have our pre-market watchlist available to everyone on Tuesday morning before the opening bell. Aloha.
TOP CURRENT HOLDINGS – PERCENT RETURN SINCE SIGNAL DATE – SIGNAL DATE
UVYX long – +81% – 12/2/15
SDOW long – +27% – 12/31/15
NVRO long – +26% – 11/17/15
