Here’s What’s Working — And What Isn’t

  • May 12, 2003
  • Rob Hanna

Most
of the time, I prefer to keep my market commentary short, and focus
more on trading ideas. I do this because
I feel that market analysis is simply not as important as following a sound set
of trading principles. Once
you’ve set up your rules, it’s just a matter of execution.
Any system or strategy will fare better during certain types of market
than others (e.g.,  a trend-following system works better when the market
is trending).

When most people give a market
analysis, they discuss how they expect the market to act, and what that means
for their specific trading style. For
example, a good trading environment for Dave
Floyd is not necessarily a good trading environment for Mark
Boucher, and vice versa. The most
important thing about the market is not whether the S&P 500 can get to 1000,
or the Dow to 10,000 by a certain date. The
most important thing is how well your specific trades will work over that period
of time. Therefore, the #1 indicator I
use in my trading is simply, “How well are my trades working lately?”
If you didn’t know anything about follow-through days, distribution,
sentiment indicators, breadth, volume, etc., but you knew how well your trades
were working, that is really all you would need to know about the market. 

If the Nasdaq runs up 20%, but
you’re losing money, are you glad you’re in such a good market? 
If the Nasdaq drops 20%, but you make money, do you care that the index
is down?  Nope.
I scale back when they are not, because really, that is all that matters
to me.

So here is a list of What
Is Working right now, as I see it:

  1. Intermediate term
    breakouts.  (For the first time
    in a long time these have been working fairly well.)

  2. Pullbacks — Landry type
    swing traders have had 3 successful pullbacks in the S&P and Nasdaq
    since the March/April range was broken on April 22. 
    Numerous stocks have also had successful pullbacks and moved higher.

  3. Intraday breakouts — Slim
    Jims near significant price levels have proved to be a nice way to enter
    some stocks.my
    April 30 column for an example of this.)

  4. Intraday reversals near
    longer-term support.

Here’s What
Is Not Working right now:

  1. Intermediate-term shorts

  2. Picking tops

These are just my observations.
If people would be willing to email me what they have noticed is
working/not working for them recently, I will be happy to post the Unofficial,
Unscientific, Working/Not working Hanna Indicator (UUWNHI) on Wednesday.
Depending on the response & success of the indicator, I may continue
to do this from time to time.

For those of you who don’t
care what I think is working, but just want to know where the market is headed,
I think it’s going up.  Most of
the “official” indicators I follow are looking pretty good right now.  
The only fly in the ointment remains the same…sentiment. 
Unofficially though, I consider most of my official indicators to be
secondary, and sentiment to be third-dary.

Best of luck with your trading,

Rob Hanna

robhanna@rcn.com

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