Looking For Opportunities? Here’s What I Suggest
The market chop continues.?
No sooner did the S&P break down on a gap below May?s lows, then
the market hit trend channel support and started rising in anticipation of lower
oil prices.? As lower oil prices
materialized, the market has celebrated a bit and is now retesting its 200 day.?
Industrials, materials, rails, large-cap value and select Emerging
Markets are leading the rally.? For
those that feel the need to trade, these stronger segments could probably be
bought versus the market or versus some of the weaker segments, like semis,
growth, consumer discretionary, cyclical retail, and broad Europe.?
But for most investors, the market is a
meat-grinder and they are better off standing mostly on the sidelines.??
Investors are uncertain and seize upon every new significant news event
as though it is setting the pace for a new trend ? but then the next
significant news event is something that weakens that conviction.?
Thus we get breakouts and reversals back and forth in a potentially
brutal environment.? Sometimes
waiting for real opportunities to develop can save you LOTS of money ? and
this is what we suggest investors do with few exceptions here.?
Despite some minor trading opportunities
and some relative long/short sector trading opportunities, we continue to
recommend a cautious stance toward equities, and heavy allocation to other asset
classes in general.?
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%.?
?This did not include our foreign stock recommendations that had
spectacular performance in 2003.?
This week in our Top RS/EPS
New Highs list published on TradingMarkets.com, we had readings of 38, 43, 53,
37, and 33 with 26 breakouts of 4+ week ranges, no valid trades and close calls
in CETV and ALL.? 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 7, 6, 5, 7,
and 7 with 4 breakdowns of 4+ week ranges, no valid trades and no close calls.?
We?re still not getting a lot of trading signals in valid breakouts,
though the environment is improving slightly on the short side.
For those not familiar with
our long/short strategies, we suggest you review my book The
Hedge Fund Edge, my course “The Science of Trading,”
my
video seminar, where I discuss many new techniques, and my
latest educational product, the 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.
While some minor
opportunities are developing that may lead to small moves that could be played
by short-term nimble traders, the environment is not yet clearly advantageous,
and so we continue to suggest high allocations to cash and other assets and a
low allocation to equities.? Sometimes
it is hard to be patient, but wise.
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