Here are some notes from this past week:
Sunday – Coming into the week (1/12/14), I was fairly aggressive long equities. When I ran my screens over the weekend, I found SO MANY setups. It was almost TOO scary how bullish I was getting on many individual stocks.
Monday – Pre-market, I saw very positive news on 3 of my stocks. I was expecting a great day, but unfortunately we had a high volume selloff in the market. I know most people on Twitter don’t admit to taking losses, but I had to stop myself out of some positions. Thankfully, I had a few strong stocks to offset some of my losses, but it was still a down day.
Monday night (Part 1) – I went to dinner with a trader friend and he was panicking. He fearfully asked “Is this rally over?” I told him to calm down. We were only down -1.3% that day and -2% off our all-time highs. I told him the market is going much higher over the longer-term, and these selloffs are part of game. These days are not fun, but they are necessary to keep people honest and in check, especially when they get too bullish (as I was guilty of).
Monday night (Part 2) – I came back home to do my stock work and I noticed that the S&P 500 and Russell 2000 bounced off their 10-week moving averages ALMOST TO THE PENNY! This is important because it’s an area of institutional support. In addition, many leading stocks were still intact on their Weekly charts. As long as the big guys continue to back this market, I will continue to ride the trend.
Monday night (Part 3) – This is the part that “happened AGAIN this week.” I opened my email to find SEVEN emails from friends asking me if the rally was over? If Monday was the top? If I’m concerned? etc. etc. etc. I know you can’t “hear” the tone of an email, but I could “feel” the sense of panic. I’m not making fun of these people, I am simply pointing out that ONE down day of greater than 1%, and people begin to panic. God help these people when (not if) we get a bigger correction.
I’ve wrote about this before. I think there are a combination of reasons why many people are on edge with this market: They are watching things too closely, we’ve gone too far too long without a correction, they don’t trust the market, the second the Fed pulls the plug we’re doomed, a flash crash could happen at any second, they are chain-smoking cigarettes and watching 1-minute charts. Whatever the reason, it seems as if so many people have one foot out the door ready to get out of this market. This psychology, combined with the number of people who HATE this market, is what will continue to drive us higher.
Tuesday – It happened again! After a down day Monday of greater than -1%, the market roared back. My friend @DynamicHedge wrote about it in this blog post. It’s almost as if the machines powering the market need to keep people in check by creating some short-term fear, and then rally things back.
Wednesday – The rally continued as the Nasdaq Composite and Russell 2000 did what they do best: LEAD. Remember, the Dow is the most publically watched index, the S&P 500 is the most technically watched index, and the Nasdaq and Russell are the most important. Why? Because they are a bigger sample of stocks and they are the true LEADING indexes. They lead on the way up AND on the way down.
Thursday – Although the market was flat to down, I had one of my best days in the last 2 years. I’m not saying this to brag, I am simply making the point that the “decoupling” that began in May 2013 is continuing. As an individual stock picker, I LOVE that stocks are moving higher WITHOUT the help of the indexes. It can really help with outperformance, assuming you are picking the right stocks, lol.
Friday – I wrote this blog post and you are reading it.
I hope everyone has a great weekend. Remember to put in the time and do some work. We are in a liquidity driven rally that could go on for a while. If you are not going to put in the time now, then when will you? Good luck trading!
I can be reached at: jfahmy@zorcapital.com.
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