Five Rules For This Market
As we all know by now,
outside events or news are the driver of the market recently.Â
It seems as if not a day goes by where the market is waiting for some economic
report or some talking head to say something. Where has the level of conviction
gone? Well, I guess it is simply a sign of the times. At any rate, navigating
this “on/off” market can be done, it just requires the most basic of trading
skills:Â define and follow your rules.
For HVT it is pretty straightforward, let’s
review:
1. Only trade to the long side when the 1-minute
trend on the S&P’s and the stock you are trading is up
2. Only trade to the short side when the
1-minute trend on the S&P’s and the stock you are trading is down
3. Make sure that the 5 minute stochastics
confirm the direction in which you are looking to trade
4. Avoid the dead zone (8:30-11 AM PST)
5. Try to focus on stocks that are in play.Â
Gone are the days where focusing on one to two stocks is adequate.
What does it mean to be in play? Well, for one
it requires that the stock is trading more actively on average. News oriented
stocks have become a big focus for me in recent months. This can be done by
simply keeping a close eye on the Most Actives or the Most Up/Down and seeing
whether or not their charts on a 1 and 5 minute time frame make sense to apply
HVT techniques to.Â
^next^
Case in point yesterday:
CVS
& BSX. Both stocks were active early on and
had news or industry related news associated with them. While yesterday was
slow, these two stocks alone on the opening accounted for my whole day. If you
have a hard time finding these stocks during trading hours, join me in my
Trading Room as I share these ideas with you and walk you through the
trades too.
Technically, the market still looks a bit heavy,
FX (Forex)
The FX markets continue to work off the dramatic
move on the heels of the Fed meeting on Tuesday. The
Dollar Index (DXC) is now back below the bear trend line going back
to last year (90) and this has put the dollar under a good deal of pressure. It
seems as the market perceives a rate hike later rather than sooner, the result,
a weaker dollar. Yes, fundamentally we still have a far more robust economy as
present, but the charts are what is dictating trades, not macro relationships.Â
I thought this observation from the staff at BCA Research and the accompanying
chart paint quite a different picture for the Dollar than do most pundits these
days:
“There has been a close
relationship between the dollar and the U.S. stock market in recent years. The
stock market has corrected lower when the dollar appreciates (Chart 3).
The Fed will err on the side of caution with respect to raising interest rates
because they do not want to derail the U.S. equity market through a much
stronger dollar.”
For now I am long the
Australian Dollar (AUD) expecting that the
DXC will soon crack below the 50 day EMA.
The British Pound
(GBP) is looking to break back above the recently broken head & shoulders
neckline (1.7989) so this area will continue to be key going forward.
The result of today’s jobless claims and
tomorrow’s unemployment number/payroll growth will likely dictate future FX
direction so at this point, risk aversion is the best approach.
As always, feel free to send me your comments and
questions.