Here Are The Setups That Will See You Through The Slow Summer Action
If I have said it once, I have said it a thousand
times, days with selling pressure are the best to trade. I can only
make that statement based on experience, but I am sure that there is statistical
evidence out there which would back up this viewpoint. First and foremost,
yesterday it was a “Fade The Gap” day. While these trades usually play out real
nice, they are that much more effective when you get a nice push lower in the
S&Ps simultaneously, and that is exactly what we got.
My choice was American International
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PowerRating).Â
Like I had mentioned to the folks in the
Trading Room, keep it focused on 2-3 stocks and watch the price action, that
is where the final layer of mystery is unveiled in terms of pulling the
trigger. Nonetheless, I stuck to that notion as I typically do. The timing
could not have been better. A short at 60.35 turned into a nice winner just
moments later when it was trading down at 60.05. There were one or two more
entries on AIG, both shorts, but after that,
as is typical of the summer, not much. Â
At this point I began to look at the 5-minute chart, a requirement when the
markets get a bit slow. Naturally the duration of the trade gets pushed out,
but the mechanics remain the same. Look at the set-up in
Goldman Sachs
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PowerRating) on a 5-minute chart at 10:35 AM EST, one
that I nailed for roughly 30-35 cents when all was said and done. Those are the
set-ups that will see you through the slow summer action. There will not be a
lot of them, but if you power through a handful of 5-minute charts periodically,
you will find them. Notice too that the low of that move was the lower
Bollinger Band. Do not get greedy in this market, extreme levels exhibit
reversal patterns more often that not, bank the profits.
One group we need to start keeping an eye on is the Gold Sector. The
Amex Gold Bugs Index is a good proxy
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PowerRating),
since it is an average of unhedged mining companies. Many will recall however
that gold shares are notoriously fickle when it comes to trading. The bottom
line is they either trade well or they are not tradable. Yesterday’s rally in
this sector has put them right back on my radar screen, however, the jury is
still out as to whether or not they will become a good trading vehicle. Look
for a move above $375 in gold and a weakening dollar (is that an oxymoron?) to
confirm.
I wanted to share this quote with you from an email sent to Richard Russell
of Dow Theory Letters:
“The real story isn’t that hard to discern. As
corporations and States are having to make up shortfalls in their pension plans
those dollars are going into the market. Moreover the amounts going in are so
large that there are relatively few stocks that can handle the amount of shares
needed to be purchased. As a result they are flooding into the Dow and other
high cap issues.
It should be no surprise that the indices are moving up. So much money is moving
in from these pension makeup’s the shock would be if they didn’t go up.
As an example, the State of Illinois is floating a $10 Billion bond issue for
its pension shortfall. All of which is committed to go into the stock market and
all of which must go into the big cap stocks. The same is true for many States.”
Â
The last paragraph is the one that I find somewhat
troubling, but perhaps I am just too much of a pessimist, maybe if I watch more
Kudlow and Cramer I will become more enamored with the current price action.
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Mark your calendars! Next Tuesday, June 24th, I will be interviewing someone
who plays an integral part in my day to day trading, Ben Lichtenstein. Ben
calls the action each day from the S&P 500 pit on the
CME. I can tell you this, I feel lost when I do not have him on
while trading. Join myself and Ben as we talk about the current state of the
markets and how you can gain that spilt second edge with audio commentary from
the S&P Pit. Sign up information to follow in the next day or so.
As always, feel free to send me your comments and questions.
Dave