While MarketSpeculator completes his vacation I felt that I would post this for everyone so that you can see what I said to subscribers after Thursday’s stock market session:
It’s groundhog’s day! Anybody remember that Bill Murray movie? It appears that is the twilight zone world we are in right now in the stock market. Just like going heavily short after six weeks down is not the smartest trade in the world, going all-in after today being the 8th straight up day for the Nasdaq with every day coming with below average volume is not the most rational thing to do. I know, after seeing a day like this, it is hard to not get involved with all the euphoria of the gains you are missing and go all-in. However, I will let you know that is the trade of a complete emotionally insecure amateur. The smart traders have been buying stocks according to their charts and if they are not fully invested by now there is a reason for that. The reasons: up 8 days after 6 down weeks, no volume on the rally, leading stocks are breaking out from V-shaped, late-stage patterns on low volume, cheap stocks are the only stocks moving up besides retail, medical, gaming, and auto. How is it possible for a disciplined trader to ignore all of that and buy stocks? The answer is it shouldn’t be. No rational trader would see the tape here and say “yeah I want to buy stocks all-in today.” The smart trader says, “wow, what a retarded tape. It needs to calm down and be more orderly before I just jump in like a wild boar.” Greed will get you nowhere in the stock market. I am not upset about being only 40-45% invested in stocks here with 35-40% of them in the medical field. In fact, I am glad I am. If I was fully invested here I would have broken my rules that have worked for the 14 of the 16 years I have been playing this game. The truth is that no fear ever entered this market, the rally appears to be a completely oversold bounce, leading stocks are ugly, cheap stocks are in vogue, and defensive sectors continue to lead overall. A pullback here on even lower volume followed by a rally on higher volume should set up better charts if this thing is going to hold. Without sound charts, I refuse to buy this tape. I continue to believe we are in our last stages of this bull run. I absolutely did not think we would hit new highs. That was a thought I really didn’t see happening after all the distribution in the tape. However, after hitting those highs on lower volume and watching the final hour of action today it is hard not to laugh and think that this could be the best setup possible for the market to really swoon. Something still feels like 2000 to me about this tape (not as severe but the overall setup). If we continue to rally through the summer on low volume it is going to suck in a lot of amateurs and that will open the door for a possible selloff post-summer. Right now, all I can do is speculate and thankfully I never marry my speculative opinion. I marry charts. If they work, we live happily ever after until the relationship gets rocky and then we separate. If they don’t work, then I cut my losses and get a divorce immediately. Thankfully, with stocks as in life, I find marriage to be a joke. I’ll stick with a hot stock until it starts to get out of shape and then bye bye. No emotions. That is the only way to play this game. You can’t care about it. You have to beat it. By beating it that is the only way to make money. You want to make money right now, it is clear the medical area is the place to be. If I had not sold VRUS I would be doing even better. If I had not sold COO which was 25% of my IRA and 15% of my regular account I would be doing even better. It happens. But clearly medical stocks are the Kate Upton of now. I will be back later with charts and individual stock analysis.
