Wednesday, June 1, 2011

Welcome to the Summer of 2010....I Mean 2011

When I wrote yesterday's post, I don't know if I made the feelings I had about the move yesterday perfectly clear, but I tried.  In my gut, I felt it wouldn't amount to anything and was likely a trap, but at the same time, I knew I've had that feeling before over the past two years just to see the market keep moving anyway so I respected what I saw and went with it.  By "went with it", I mean I got a list of longs ready and bought one long position last night.

Based on today's action, I should have trusted my gut.   It was awful out there any way you cut it, much more severe from a negative perspective than yesterday's up move was from a positive perspective.   Example - buying/selling pressure ratio was +181 yesterday.  Today, it was -374.  My main signal is back on a "sell" and you rarely see that happen (well, except in very choppy markets...hmmm).  Any sort of follow-through day or follow-through day "lite" is dead in my opinion.   Lots of charts were damaged and the indices look poor once again.   We've heard this story before.

I was short two positions going into today (BEXP and ARUN) and long one position (TSM).  The short positions allowed me to make some decent gains.   I got into REDF early on at $11.14 but could not manage it perfectly and ended up being stopped out at $11.12.  This was a casualty of having to work and not being able to track the market all the time - I simply couldn't be there when it started breaking down.

I added a few shorts at the end of today's session (DECK and APKT) and may add more yet, as I have many setups that look good (HP, SOHU, CYD, PCLN, SGY, AG).  Note - I did short AG after-hours. I think we have further downside from here but will keep my stops in place in case the market surprises us all once again.   Longs are pretty much out of the question for me here for the next few days until we get to oversold levels from which I think we can bounce.

I titled my post today the way I did because I think we are looking at a few month period ahead of us that is going to be very similar to the three month period we saw last summer.   We had a correction, but if you take out the "flash crash" move, it was slow, choppy, and very difficult to trade.   We had sharp selloffs that made things look very bad, and then the market would bounce out of nowhere for three, four, or five days.   Just when it looked like things were OK and that the market was going to start a meaningful rally (above short-term moving averages, FTD, etc), it would tank again.   Up, down, up, down - not the recipe for easy profits.

Unfortunately, I think that's what we're in store for here, and because of that, you have to adjust.   I've been taking profits a lot quicker recently and have had success with it.   I think overbought and oversold type indicators will work well to time potential trades and I will continue to share those as we go.   It's not going to be an easy summer, but it is what it is and you have to make the best of it.  Buy the dips and sell the rips has been working for a few months now - might work for a few more. Good luck Thursday.


Anonymous said...

Great post !

Anonymous said...

Tough day :(

Mac said...

Someone posted the following comment and I accidentally deleted it - sorry.

"Hi Ryan - could you explain why you said the chart of these stocks look good HP, SOHU, CYD, PCLN, SGY,? Thanks"

To answer that question, I meant they looked good as short setups in that they were either forming bear flags (SOHU, CYD) or running up into heavy resistance (HP, PCLN, SGY). As I said earlier on twitter however, not many short setups worked today. It was a tough market for both bears and bulls today.

Anonymous said...

Thanks for the answer. it makes sense now.