Sunday, September 11, 2011

Outlook for the Week Ahead - Pay Attention to the "Two in a Row" Concept Here - 9/11/11

Hi traders - no video tonight but here are some written thoughts going into the week ahead.

Let me start by clearly expressing three key points I've been making for the past month on all of my videos.  These are of course my opinions, but if you've watched my videos for the past month or so, they shouldn't come as a surprise to you - I've stated them many times....

  • We are in a bear market and much closer to the beginning of it than the end.  
  • We will eventually break the August lows and could fall much lower than those levels.
  • The sharp and historic decline at the beginning of August was so dramatic that it will take the market some time to become normal again and choppy trade is the most likely result(which I think we've seen a lot of recently).
  • Until the Nasdaq gets above 2600, there is no reason to think anything bullish longer than a few days.

So what about the week ahead?  Well, I did express some caution on Wednesday's video in terms of chasing longs and Thursday and Friday showed why - we had two nasty sessions in a row.  Right now, I see a lot of bearish chatter on twitter.  You would expect us to fall big then on Monday and for me to be advocating putting shorts on here then, correct?

Not so fast.  One general idea I have when trading is the "in a row" concept as a warning sign for what I may want to do in the short-term.   By "in a row", I mean how many days has an individual stock been up or down in a row.  This often affects my trading, although the actual number in terms of days in a row can changed depending on the market.   This is obviously not a novel concept - I know that.

I would say the typical number I use in the "in a row" concept is three. I never feel comfortable buying a stock that has been up three days in a row and I never feel comfortable shorting a stock that is down three days in a row.  Most times, this uncomfortable feeling keeps me out of making moves in these stocks, even if they continue to move up or down in the same direction without me.

In a bull market that is strong and consistent, I may feel comfortable enough to move that number up to four days or even five, although that is very rare.   In a strong bear market, maybe that number will move to four, but that rarely happens.   In a choppy market like this one, that number usually declines to two.  That's where I believe we are still at and is why I titled this post as I did.

For the past month, I think it can be argued that very few trades have become more profitable when held for more than two days.   If you would have entered a trade (as I did Monday going long) and excited two days later, you would have caught most if not all of the gains available in those trades.   In some cases, two days was actually too long and some gains disappeared when held longer.   This is for individual stocks, not necessarily the market as a whole.

Relating it to this week, we've now been down for two days on the overall market and most stocks in my scans have also been down two straight days.  Because of this, my "in a row" belief means I won't be shorting tomorrow. I don't see too many stocks that interest me on the short-side because many have been down two (and in some cases more) days in a row and are likely just setting up for whipsaws that would stop me out.   If you're already short from Thursday or Friday, I would be tightening my stops if we get a lower open tomorrow morning.

Unlike last weekend, however, (when I saw many nice long setups forming), I see little to nothing that looks good on the long side.  The top three stocks on my watchlist (HNSN, MDW, CLSN) are all under $5.   There is just not much out there to trade at this particular juncture - the setups that might be worth a short-term swing trade are just not there.   If you have to trade, I would focus only on ETFs this week and if you have to trade Monday, I would look for a potential reversal back up for a day or two.

I've really been cutting back on my trading the past two weeks and based on what I see, I won't be doing much this week.   Again, I believe that eventually the August lows will be broken and we'll get a second move lower in this bear market.   My gut tells me that the market may chop a few more folks up before doing that however, so I will continue to wait for bounces to short from rather than chase the downside here.   I may be wrong, but it won't be the first (or the last) time for that.

Good luck this week - the past four weeks have been very whippy and I see no reason to expect this one to be any different.   Be careful and be patient.   Whereas I've seen a slight edge for one side or the other entering each of the past two weeks, I really don't see any edge here for either side whatsoever.   

3 comments:

Anonymous said...

CST,

Did you mean HNSN?
"...The top three stocks on my watchlist (HSNS, MDW, CLSN) are all under $5..."

Mac said...

Yes - thank you.

Will fix the typo now.

Anonymous said...

hi mac
3 days in a row, then today (14sep) should be peaked. if so, that will match the bottom div on 15min chart. let it swing as high as possible for us.

thx

mini-me