Despite the intraday reversal off the highs on Friday, it was an overall good session as stocks still managed to finish higher across the board with the Russell 2000 leading the way. Volume was lower than the session before which helps dampen the disappointment of today’s reversal off the highs. Bulls will say that the recent action is a normal reaction to the short-term oversold levels in the overall market. Bears will say that this is an indication of a market trying to top. The data suggest, for now, that this week’s pullback is so far healthy as breadth was overall positive for the week with a lot of stocks hitting new 52-week highs despite the selling.
Our operational models remain under an across the board BUY signal with very little weighing on the condition. We do have two clear distribution days in the indexes but with volume coming in below average on both occasions it is not going to weigh on our model just yet. There are simply too many setups, stocks breaking out, and overall positive breadth to get cold feet here. While we continue to monitor our stops closely, there is no point in overreacting here. I am going to continue to let each long position tell me when it is time for me to get out of each name, rather than have the market tell me when to get out.
Another hint that this pullback is healthy is that we had at least one new long position trigger each session this week. On Thursday there was only one speculative name to trigger but the fact that we had a new signal everyday is something you definitely would not have seen if the pullback was more sinister. Considering that we also had very few current holdings fail–with the majority that did fail being recent long positions–throughout the week that must be taken as another small positive. Were there some harsh intraday shakeouts that have knocked me out of some positions? Yeah. However, in this tape, it is going to happen.
So far the pullback is normal and orderly. This could obviously change at any moment and we are prepared for that change if it does come. Do not get complacent here. The gains in our long positions are not large enough at this point to get “cocky” here at all. They are doing “OK” but OK is not good enough for me to feel comfortable that we are just going to continue to chug along higher here. I am still very apprehensive and I have my finger on the SELL button ready to execute if need be. I would rather not but I have been around long enough to know that post 2008 anything can and will happen. What used to make sense no longer does. That is why you need to always be on your toes in a tape like this on an EOD trend following basis. I wish you all the best during the upcoming trading week. Aloha!
TOP CURRENT HOLDINGS – PERCENT GAIN SINCE SIGNAL DATE – SIGNAL DATE
CLR long – +71% – 2/11/16
LITE long – +26% – 2/3/16
FPRX long – +26% – 3/18/16
