PowerRatings, the Race for the 200-Day and Staying the Short Course
The rally in stocks hit a new stride on Wednesday after the Federal Reserve announced new quantitative easing measures involving a variety of new asset purchases, including billions for long-dated U.S. Treasuries.
Larry Connors, trader and founder of TradingMarkets.com, has referred to the current market as a race for the 200-day. By this, he is talking about what can happen when a market that has been pushed far below its 200-day moving average during bear phase makes a strong move higher. Occurring in both significant bear market rallies as well as new bull markets, the race for the 200-day is that emotional moment when buying shifts from mere short covering to the first real commitment of capital in the belief that a sustained rally is in the making.
During this period, stocks can move higher day after day after day with little pause for profit-taking. For those who are long, the advance can be exhilarating, as every day brings a new short-term high.
Of course, for those who are short, the often nearly-vertical ascent provides a different, but no less heart-impacting sensation.
If you have been trading the high Short Term PowerRatings ETFs that I have been mentioning for a week now, then you are likely in the latter category. These ETFs still have the highest Short Term PowerRatings of any stock or ETF in our database. I took some time to see if there were stocks trading above their 200-day moving averages that might be offered alongside or instead of our high Short Term PowerRatings ETFs. There were virtually none.
There is no telling when traders who were long the market back in the first half of March will begin to take profits off the table. But it is the case that the higher stocks go, the more pressure many of the rally early adopters will feel. And this pressure, the fear of losing gains to a sudden reversal, is what will eventually lead to the profit-taking that will bring stocks lower and short ETFs higher.
In the meanwhile, keep your position sizes moderate and well within your personal comfort zone. Markets do not move up or down forever. Make sure you are not so mired in anxiety over a trade that may or may not be heading in your direction right now that you are unable to take advantage of whatever opportunity to take profits or cut losses when it arrives.
Our highest Short Term PowerRatings stocks have outperformed the average stock by a margin of nearly 17 to 1 after five days. Click here to start your free, 7-day trial to our Short Term PowerRatings!