A Few Thoughts on Monday’s Selloff

  • Posted by on April 27th, 2015 at 10:55 pm

At first, you might laugh at the title and say: “What selloff? The market was only down -0.41%.” Keep in mind I mainly trade individual growth stocks and beneath the surface, there was some damage today.

1) Relative to how much the general market was down, an abnormal amount of stocks were down over -4% on Monday.

2) The IBD 50 (an index consisting of market growth leaders) was down -2.2% on Monday. It was also down -1% last Friday but strong earnings reports from $GOOG $MSFT and $AMZN masked the weakness that day.

3) The Nasdaq Composite had a big volume distribution day, its second in the past 6 days. Keep in mind that distribution (professional selling by the institutions) can happen on the way up.

4) Many Biotech and Semiconductor stocks are starting to breakdown. These have been the recent leadership sectors. I don’t think they are done going up, I just think they need time to setup again. To paraphrase Jesse Livermore, if you are having trouble making money in the leaders, you will have trouble making money in the overall market.

Conclusion: It’s tough to get too bearish because we are still in a global liquidity driven environment. However, the warning signs listed above are definitely a reason to be cautious until we get a clearer picture. The market’s overall uptrend is still intact, but these are the times when it pays to know your timeframe, have a proven market philosophy, and stick to your discipline. Good luck trading!

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A Market Scenario that Frustrates the Most People

  • Posted by on April 20th, 2015 at 10:02 pm

A scenario that would frustrate the most people is if the market stays in a range for a while. Let me explain:

1) The perma-Bears want the market to go down and STAY down. I’m assuming it’s because they’ve missed the rally, they feel the market is overvalued, they’re afraid to buy near highs, or they’re just miserable people in general. Of course the market will have pullbacks and shakeouts, but I don’t see a prolonged correction over the near-term mainly because too many people want this or need this to happen.

2) The perma-Bulls don’t matter because they rarely sell. They tend to ride things all the way up and then ride them back down again. That’s why I always encourage keeping an open mind when it comes to the market. It doesn’t make sense to always be Bullish or Bearish because the market is not always in an uptrend or a downtrend.

3) If we stay in a range, stock picking can play a big role. For example, in 2007, the S&P 500 was up +3.5% and Ken Heebner, one of my favorite portfolio managers, was up +80% in his fund. How did he do it? He was concentrated in the strongest stocks he could find. I also did very well that year and was up +72%, as many stocks in the commodity space exploded to the upside while the major averages meandered around.

4) So far, this year is shaping up the same way. The market averages aren’t doing much, but individual stocks in leading sectors such as Tech, Generic Drugs, Semiconductors, and Biotech are significantly outperforming. This strategy isn’t for everyone, but if you’re willing to put in the time, do a little homework, and have some conviction, I feel that this year (more than any in recent years) will truly reward strong stock selection. Good luck trading!

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