Consider These Choices
When I first started writing for
TM back in the Spring of 2001, I was there to
provide one thing: insight and commentary regarding short-term trading of
stocks, or what later became known as HVT.
Since then, the markets have experienced several different events, most
tragically 9/11. From there have been large rallies (March 2003) and large
sell-offs (July 2002). One nagging characteristic has been present throughout
however, contracting range and volatility. For the most part, traders have made
adjustments and have either adapted or floundered. Those with the most focus
and discipline were the likely victors. There comes a point however when no
amount of focus and discipline can hide the obvious fact, there is simply not
enough range.
In my opinion, we are at that juncture
presently. Yes, there are trades, but they are mainly on the opening; after
that the probabilities fall off a cliff. I can do one of two things here at TM:
1. Provide an eloquently written article each
day about how I did this trade and that trade and if you did not, you were not
paying attention. You and I both know that would be dishonest.
2. Or, if you are open to it, and not adamant
about being confined to one style or market, allow me to share with you what is
not only moving, but working for me personally in this market.
Bear in mind, I am suggesting a straddle
approach. There are opportunities on the opening, but in the meantime there are
other trades that can take place in the background and provide some range and
volatility. So, as of today, you can either accept that you need to make some
adjustments as I have or you can continue to flog a market that in my opinion is
in serious need of a pull-back to shake things up.
Look at the chart of the 1-minute S&P’s from this
morning, then look at the chart of the Yen and some select gold stocks. You
decide where you want to trade.
I will let you decide. I have not been this
excited about trading in quite some time. While at first it was a bit
disheartening, the fact that there are other markets to utilize my skill in is
encouraging. Can the landscape change and more volatility comes back to the
market for HVT? Absolutely. However, I have no intention of remaining idle
until such time arrives.
In previous articles I have advocated looking at
5-minute charts to isolate entry points. The present environment requires that
you consider doing this as well as looking at some other sectors. Sure, the
bank and chip stocks offer some good trades, however, these are the sectors that
have been in favor for years. It is unlikely that they will be the sectors that
will lead going forward, historically this has been the case (previous leaders
never lead a new leg in a bull market). Based on research that I have done,
consumer spending will likely slow in the coming year, but capital spending will
likely finally kick into gear. Stocks like Danaher
(DHR), ITT Industries (ITT) and
Navistar (NAV) are beginning to show signs of
increased intra-day range. Volume is still a bit light, which is why you need
to use a 5-minute chart. However, if this sector begins to gain traction, more
and more players will join in, volume and range will likely increase. The
important point is that they are moving presently.
For today, continue to focus on the
Dollar Index (DXC) — it made fresh lows again
yesterday. With the exception of some intervention by the Bank of Japan
(BoJ) mid-day it was another soft day for the dollar. Will the weak dollar ever
matter? I suspect at some point it will, but for now, most players have the
ostrich mentality. There are many parallels to the way the dollar is trading
now and the way it was in 1987. It did not matter until it mattered. Consider
the following quote from Bill Fleckenstein last night:
article states: “Richard Clarida, a former Treasury assistant secretary, now
at Columbia University, pointed out that the 30% dollar decline from 1985 to
1987, helped on its way by the 1985 ‘Plaza Accord’ international agreement to
weaken the currency, was accompanied by rising U.S. stock prices and a growing
economy.” Until it wasn’t, and we had a crash. Of course, bulls will say yeah,
we had that crash, barely a blip on a long-term chart, and look what happened
afterward? (We raised moral hazards and we went on to have the biggest mania
in the history of the world.) This time, when the dollar finally causes the
same sort of event, the ending will not be so relatively benign as the 1987
crash now looks on a long-term stock chart.”
The DXC is
the perfect lead indicator for shorter-term trades in the
Euro (EUR) and Swiss
Franc (CHF). Both trade inversely to each other and operate on the
same premise as a standard HVT trade. The DXC will lead a move in the Euro.
The only difference is that trading FX off of a 1-minute chart is simply not
practical. The minimum time frame I will drill down to is a 60-minue chart.
In summary, traders need to make some decisions
presently. The way we have conducted business in the last few years has
slowly been changing, and has now reached a point where you actually need to
adapt to these changes. I have suggested a few approaches:
1. Focus (trade) the stocks that will
benefit from a pick-up in capital spending, DHR,
ITT and
NAV
2. Watch the EUR and the Swiss Franc (CHF) as
contra-traders to the movements in the DXC. This is an approach that uses all
the elements of HVT, but overlays them on a slightly longer time frame.
| Support/Resistance Numbers for S&P and Nasdaq Futures |
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As always, feel free to send me your comments and
questions.