Morning Market Thoughts
Good morning. We are looking at a lower open today as the indexes once again test established support. I don’t expect too much buying interest this morning because the Fed minutes will be released this afternoon.If you want stocks to go higher, you’ve got to be rooting for a really depressing document in which the Fed laments about how horrible the economy is and that it doesn’t see any light at the en d of the tunnel.
If you want stocks to go lower, you’ll be rooting for a really upbeat document wherein the Fed expresses optimism that all of the machinations that the central bank h as been doing over these past several years are finally starting to take root and the economy is going to reach “take off velocity” (one of Ben Bernanke’s more memorable terms that describes how the free flow of money, if given enough time, will stimulate spending to a point where economic growth takes on a life of its own…and then the free money can be quietly taken away, one dollar at a time). Essentially, the economy will lift itself up by its own bootstraps if consumers and businesses can borrow enough money at super cheap rates.
Now, this never happened and Bernanke retired. (Nice to be him, though).
But those are the two extreme sides of what the market will be looking for. Optimism is bad for stocks — to a point. Why? Because the Fed is more likely to hike rates. “Better economy…but your borrowing costs are going up.” Pessimism is good for stocks — to a point. Why? Because rates are likely to remain unchanged, and traders like stable environments. We’ll see these notes express sentiment somewhere in the middle of those two extremes. And as edgy as traders are right now, the direction of the market will depend on which side the optimism vs. pessimism needle rests.
But after all the gyrations subside, we’ve still got a market where retail is taking a nosedive and oil is continuing its gentle march toward $50/bbl (a good dynamic for growth in the energy and select transportation industries). This bifurcation in trends, along with underperforming Midcap (MDY) and Small cap (IWM) sectors, raises a pretty bright yellow flag. I’ve said this countless times in recent videos, but I don’t assume that every member watches every video I produce — though it would be nice if you did. 🙂
One of the toughest, and rarest characteristics of profitable traders is patience. Patient traders are profitable traders. Impatient traders are a broker’s best friend. They make a lot of trades, irrespective of the quality of the opportunity presented. Sometimes there is no opportunity, yet they trade anyway. They just can’t help themselves.
But look at a chart of the S&P that covers the last year. Don’t you see the opportunities presented on those occasions where patience pays off? If a trader had substantial cash in the account, watching the market roll over was truly an exercise in patience. But you’d be developing your skills as a trader. You’d be learning to be more discriminating. And you would be able to see things objectively, without the fog created by holding a lot of losing positions that you were quietly and desperately hoping would turn around and get you out of the hole you were in.
So, my challenge to you is that you work on your patience. Here’s how you do it…and it doesn’t involve trading. Scroll through 100 charts — daily bars. The charts should be of stocks that you do NOT own. Now, write down the ones that look good to you. Can you identify a trend? Stay in the daily timeframe. Don’t zoom out and look at the weekly chart. Can you identify a trend…or is the chart (and hence the potential opportunity) pretty ambiguous. Just write down the tickers.
And when you are done, take note of the percentage of those 100 stocks that are actually viable opportunities. Now, do it again with that shortened list. Take out the ones that aren’t quite as good as you thought they were. Bam! You’ve got a shorter list. If you do that enough times, you’ll probably wind up with about 2-3 charts that look good right now, though you might come up empty handed.
Seriously, this is what profitable and patient traders do. They may not be conscious that they are doing it, but this is what they do. They rummage through the market using their own methods — whether they be fundamental analysis, sector analysis, or day trading. But they look at a large number of possibilities and pass on most of them. They home in on the one opportunity that suits their profile. And that’s the trade they take.
Sometimes the market is “target rich” — trading opportunities everywhere. Sometimes the market is pretty sluggish and weak, generally devoid of opportunities. This market is the latter. Just not too many bogeys flying around in the dogfight.
One last thing — big money moves markets. Retail money seeks to capitalize on the moves that big money makes — to follow the tracks of the elephant. Lately, we’ve seen one firm after another issue tepid outlooks for stocks. Just this morning Goldman Sachs lowered its outlook for stocks to “neutral.” We’ve seen big money managers express similar sentiment…or worse. So if the big money isn’t really interested in buying this market, you’ve got to respect that lack of interest. Any big moves are likely to be to the downside. Stocks that gap up are likely to fall back. And stocks that gap down are likely to continue.
If you accept this reality, you’ll become more patient. You’ll start looking for shorting opportunities, or even start focusing on trading the first hour of the market (which takes focused time in the morning, as well as knowledge of what to look for). You’ll start looking at cash as a viable position because it represents future profits when the right opportunities come along.
See you in the forum.
Dan
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