Is This Trading Range Trying to Bottom?
Trading Range Trying to Bottom?
We’ve had enough downside in the market to reach some minor
oversold levels and we are currently testing 200 day support in a number of
indexes. Semi’s broke down and look
likely to drag techs for some time.Â
EM’s appear to have put in a top and are weaker in general as well.
growth. The market is see-sawing
between staples outperforming and materials/industrials outperforming depending
upon the economic outlook. Our
suspicion is that we can find a short-term bottom between here and the next few
percent lower and stage another attack at the trading range highs.
outperform, and our favorite here is Austria.
The dollar continues to drift, to the slight benefit of gold
and silver, which may retest their trading range highs as the drift
continues. Commodities too, are in a
trading range and depend upon Chinese growth information largely for
indications of how to move. Bonds
should continue their slight reprieve as long as a deceleration of growth in
the US and globally continues, which we expect for at least a couple months
ahead.
Our long watch list is starting to do OK while our short
watch list is drifting lower. If this
trend continues it will be a mini version of the ’99-‘2000 top formation period
where both sides worked well.
Investors should continue to be quite cautious in here.
huge risks to make this market environment pretty unfavorable from a risk/reward
standpoint.
Our
model portfolio followed in TradingMarkets.com with specific entry/exit/ops
levels from 1999 through May of 2003 was up 41% in 1999, 82% in 2000, 16.5% in
2001, 7.58% in 2002, and we stopped specific recommendations up around 5% in
May 2003 (strict following of our US only methodologies should have had
portfolios up 17% for the year 2003) — all on worst drawdown of under 7%.
did not include our foreign stock recommendations that had spectacular
performance in 2003.Â
This
week in our Top RS/EPS New Highs list published on TradingMarkets.com, we had
readings of 33, 18, 22, 28, and 33 with 5 breakouts of 4+ week ranges, no valid
trades and no close calls. Upside
breadth has backed off yet again, and downside breadth is now expanding to
nearly decent shorting levels. Position
in valid 4+ week trading range breakouts on stocks meeting our criteria or in
close calls that are in clearly leading industries, in a diversified
fashion. This week, our bottom RS/EPS
New Lows recorded readings of 26, 20, 25, 16, and 34 with 16 breakdowns of 4+
week ranges, one trade in ADLR and IDBE, and close calls in CTAC, ICOS, and WLM.
signals in valid breakouts, though the environment is improving.
For
those not familiar with our long/short strategies, we suggest you review my
book
target=”_blank”>The
Hedge Fund Edge,
my course “The Science of Trading,”
target=”_blank”>my
video seminar,
where I discuss many new techniques, and my latest educational product, the
target=”_blank”>interactive
training module.
Basically, we have rigorous criteria for potential long stocks that we call
“up-fuel,” as well as rigorous criteria for potential short stocks that
we call “down-fuel.” Each day we review the list of new highs on our
“Top RS and EPS New High List” published on TradingMarkets.com for
breakouts of four-week or longer flags, or of valid cup-and-handles of more
than four weeks. Buy trades are taken only on valid breakouts of stocks that
also meet our up-fuel criteria. Shorts are similarly taken only in stocks
meeting our down-fuel criteria that have valid breakdowns of four-plus-week
flags or cup and handles on the downside. In the U.S. market, continue to only
buy or short stocks in leading or lagging industries according to our group and
sub-group new high and low lists. We continue to buy new long signals and sell
short new short signals until our portfolio is 100% long and 100% short (less
aggressive investors stop at 50% long and 50% short). In early March of 2000,
we took half-profits on nearly all positions and lightened up considerably as a
sea of change in the new-economy/old-economy theme appeared to be upon us.
We’ve been effectively defensive ever since, and did not get to a fully
allocated long exposure even during the 2003 rally.
Massive
stimulus globally is working to create a self-reinforcing recovery.
faces more potential risks than any recovery since WWII.
removed. Central banks can only be
magicians for a while before reality must come home to roost.
Mark Boucher