Lg-Cap Portfolio Review 3/11/2016

Markets continued higher this week and are now more than 200 points off the lower low set just 5-weeks ago. Its hard to guess what should come next; normally after 12% straight line rallies markets consolidate for an extended period of time and/or correct lower. As we discussed a few weeks ago our environment has been one of a modestly down-trending range with large swings in either direction. Just as it seems the market will never stop its relentless move (up or down) it finds an equilibrium and eventually reverses. I expect this pattern to continue.

I've discussed in the past how I like to use the Weekly MACD indicator. Typical analysis (lazy analysis) tells us when the MACD line crosses above the signal line that it creates a bullish event. In my experience its much more important to view the overall position of the indicator rather than whether its in a "crossed position" or not. In fact the "bull cross" that occurs after a strong move into negative territory (below the zero line) is almost always an awful timing indication. Its a trap signal that fools those who take little time to study the actual momentum. We are currently seeing this "bull-trap" crossover. If you look at what happened the last week of October 2015, we saw a similar crossover that occurred 30 points from the ultimate high (this came after a nearly 200 point rally in 5-weeks).

Here we are again. 200 points off the low and NOW it appears to be a good time to follow the indicator Long? I guess some people actually think this way, god help them. If history is any guide this signal should tell us the ordinary, lazy man is bulling up on stocks here and is just about to have his head handed to him again. Thank you sir may I have another.

SP500 Monthly

Bear in mind we are only a third of the way through the month, however it should be emphasized we are at a critical resistance area on the long-term timeframe as well. In fact our current positioning looks strikingly similar to another time in our recent history:

This is the monthly view of the mid 2000's Bull market which was of course followed by the 2008-2009 Financial Crisis.

Typically these key moving averages act as support during uptrends and resistance during downtrends. How the market responds at this level will be very important for the continued health going forward. A monthly close back above the 20 Month SMA will put the market back on stronger footing. But the longer price stays below this critical line, the higher the chances we do enter into a prolonged downtrend and bear market.

Of course in our current environment it doesn't take too long of talking bearish before your prophesy is fulfilled. Rather than continuing on about why we are doomed to go lower at some point, lets take a look at a couple new Long positions we opened this week and our remaining Lg-Cap Portfolio holdings.

We follow price and Relative Strength. Getting too worked up about what could happen in the future is generally why most fail to keep up with the market.  Successful management means not having a strong opinion of what we can't control, but instead focusing on strength and leadership from where ever it may come. 

+Entering Sherwin Williams (SHW)

Offensive leadership in this market is rare to find. A name that continues to impress on this bounce is Sherwin Williams. Something to note is while the SP500 made a lower low during the Jan/Feb correction, SHW made a higher low and now a higher high. This is precisely the kind of leadership you want to find develop during a market correction.

In corrective markets the indices continue to make lower lows yet some individual stocks will begin to bottom sooner and be diverging prior to the absolute low in the indices. This may be what we are seeing with SHW here. There is no telling whether the low for the market is in, but if it is Sherwin will likely be a leader in the next rally. 

When looking at the Daily or Weekly view the stock seems pretty extended due to its recent rally. But when you take the move in the larger context of the Monthly timeframe it's not extended at all.

Monthly

We've seen a year long sideways consolidation that has allowed the rising 20 MMA to catch up to price. There have been two tests of the average and now appears ready to break away again. 

For risk management purposes we can use the swing low near $240 as our stop. That would break the recent uptrend and take price back below the 20 MMA support. Because of the slightly wider stop our position will be a little smaller than normal. However should this trend continue we will have plenty of opportunities to add to positions as we raise our stops in the future. 

+Entering United Healthcare (UNH)

UNH has had a very orderly correction through time rather than price over the past 18-months. This week we saw the highest weekly close ever for the stock. While there still remains some resistance  at this level, its a very constructive sign to see a prior leading stock like UNH back to new weekly highs.

Similar to SHW above, UNH has slowed its ascent enough for the 20 Month MA to catch up and act as support on the recent consolidation. Over the last 6 years, tests of the rising 20 MMA have been tremendous buying opportunities and have led to strong rallies. Until this pattern changes we will follow along.

Monthly

Using both the weekly and monthly support levels we will place our initial stops at the recent swing low at $109.25. That gives us a solid cushion to work with and also allows us to stay long the stock provided it holds above its long-term average price. Since the bull market began in 2010 this stock has not once closed a month below its 20 MMA. Lets ride it while it lasts.

-Exiting CVS Short

With the market rallying relentlessly it only makes sense that CVS follows along. While it remains a relatively weak stock overall, by breaking above above the critical resistance level at $100 means we have to step aside. This was a small price to pay to see if weakness would prevail. Since it did not we take our lump and move on. 

FB

Facebook held a test of its 20 WMA this week and continues to hold above first support levels. Should it move to new highs we will be able to trail stops near this week's swing low. Until then however we have to keep them out of the way at the most recent pivot low near $95.

There is no sense getting antsy here. In terms of relative performance FB has been one of the best names to own in the market.

GE

GE held its prior breakout level and is now attempting to resume to higher highs. Due to the recent consolidation and subsequent strength we will trail our stops to the latest swing low ($27). While it hasn't been confirmed yet with a higher high, I am confident knowing that if this recent low should fail we could step aside due to a failed long-term breakout.

Also because of the higher trailed stop we can increase our position size by about 40% and still keep our open risk at .5R. 

AEP

AEP resumed its uptrend with a higher swing high since breaking out several weeks ago. This is now just 2% from its all time high set in early 2015. I see little to suggest it will not surpass that and move to new highs soon.

Utilities remain the strongest sector in the market

PCG

PCG had a good week and is only slightly trailing behind AEP. This remains poised for higher prices, not to mention a fat dividend for enjoying the ride.

PM

PM despite some softness on Friday this continues to crush following its multi-year breakout. Little reason to be worried about this name. Sure it may pullback, but the trend remains firmly higher.

Short GD

 GD remains a Short for our Portfolio and is currently the only open Short we hold. Below the swing high at $138.50 I like the chances for lower prices.


With the recent strength continuing across the markets conditions are no doubt improving. However the strongest setups I am seeing remain Shorts rather than Longs. Most still need some time for optimal entry points but I think given some consolidation they could be ready in the not so distant future. Here are some things I'm watching on both the Long and Short side:

Watchlist- Long

MDT

HD

XOM

HON

Watchlist- Short

AAPL

C

BAC

GILD

V

 Thanks for reading
-ZT

Finding Some Supply

Markets extended their gains this week with the SP500 up +2.6%, while the Russell 2000 Small Caps rallied 4.3%. The SP500 is now 10% off its lows in the last four weeks and has done so in a straight line. There has been little resistance to the snap-back up until this point. However we are now approaching some very significant supply levels and we saw the effects of that Friday in many individual names.

SP500

This recovery hasn't been led by the typical leaders of the recent bull market. This rally has seen the "junk" stocks, those that have been in horrible bear markets, lead with the best gains. This doesn't mean you can't make money by trading them, quite the opposite really. But it does tend to suggest more caution than normal and is more indicative of short covering than a new bull market beginning.

Anyway, regardless of how we want to label this recent rally, we are finally seeing signs that things may be slowing down. Some of the best moves have come out of the Materials, Mining, and Energy groups. Mostly names that have been obliterated over the past year and are now having their "bottom callers" moment.

Freeport-McMoran (FCX)

McEwen Mining (MUX)

3D Systems (DDD)

US Steel (X)

 Chesapeake Energy (CHK)

All of these names have rallied substantially in the last 4 weeks. Each seeing gains of more than 100% since the January/February lows. With the market recovering 10%, these stocks above are either the new bull market leaders or simply making a long overdue short-squeeze type move.

Trading volumes expanded significantly the last couple days, well after these trades had rallied dramatically. This shows that those who were late to the party just figured out what was happening and piled in while better prepared participants distributed shares to them as prices reached prior resistance areas. This is very typical of desperate, chasing behavior which tends to happen near the end of moves. Its exactly the same as a large decline; participants capitulate when they can't take any more pain. In this case they simply couldn't miss out on these rallies any longer. 

Prepared market participants have very defined setups and structure they look for in a trade entry/exit. Generally speaking these market players don't enter a trade 4-weeks into 100% vertical moves. Emotional traders do this and this is why most fail in the markets. They react emotionally, with little conviction and end up chasing the market around rather than letting it come to them.

That said, it is possible this is the beginning of a new raging uptrend for many of these names. However this is also very typical of down-trending behavior and market psychology at its purest.

Taking these moves in context of the bigger picture there is still tremendous damage to repair. It certainly could happen, but major bottoms like this take time to play out. Just take a look at where these currently trade in relation to their recent highs:

CHK

FCX

X

You get the point. All of these rallied off a lower weekly swing low and remain severely depressed from highs just a year or two ago. Major long-term moving averages are sloping lower as well. I'm not saying this isn't the low, it very well may be. We simply don't have the evidence in place to suggest we need to pile in at current prices.

Bases take time to build and this may be the first step. If you are bullish longer-term on these names we need to see the next pullback find support at a higher low and for the moving averages to flatten out and turn higher under price. Just know that if these moves turn out to be the real thing and generational lows are in place, you will have PLENTY OF TIME to participate in the upcoming rally. Don't feel compelled to buy right here, you won't miss out on much. Lets sit back and see what can develop over the next few months. Maybe pullbacks hold support and setup favorable risk/reward opportunities. Maybe this was just another counter-trend surge and new lows are coming in the near future. Nobody knows. The point is you don't have to know if the bottom is in to profit on the potential upside. Simply watch how price behaves after these trend rattling moves. Keep a list of your favorite names and see what develops. 

Thanks for reading
-ZT

 

Lg-Cap Portfolio Review

So far this year we've looked at short-term setups, Long-term Monthly charts, trading Short, general market psychology, etc. But this week I want to get back to the general focus and take a look at the market from the weekly perspective and our Large-Cap Portfolio holdings.

SP500 Weekly

 For all intents and purposes the 1820-1810 level is finding buyers. We have now seen 3 tests of that area and each time buyers have come in to support stocks. However that makes you feel (too many tests, the market is in a downtrend, its gonna crash, Head/Shoulder Top, etc) the fact remains that while we are above this support the market is in a trading range.

We also saw this week a higher high printed over the short-term; the prior swing high on this decline was the 1/29 close at 1,940. Tactically this makes way for a potential bottoming sign and a trade-able setup. Structurally however this longer timeframe remains with a lower bias. As you can see we have negative sloping 20/50 Week MA's that are crossed bearishly (falling 20 below falling 50) with a larger trend of lower lows and lower highs.

 Price is generally moving in a wide descending channel since 2015. There have been clusters of activity at each minor turning point. Each resolution of a cluster (a break through support/resistance) has offered minor trends for trading. With this week's breakout we may be seeing another of these opportunities. That doesn't take away from the fact that the larger trend remains down-sloping. To extrapolate forward, the next price "cluster" should likely occur near the resistance zone between 2080-2000. At that point we will see how the market behaves, but the pattern so far has been to resume lower after failing at resistance.

Keeping this broad context of how the market is generally behaving is very important. Understand that there can be trades to be made over the short-term, but that the longer-term direction for the market remains lower. This means Long trades are more likely to fail and position sizes should be reduced to account for the lower probability of success.

Our Large-Cap Portfolio is currently 30% invested: 25% Long PM, AEP, PCG, FB, GE. 5% Short CVS and GD. 70% Cash.

This is a very defensive posture with exception of the FB and GE holdings. Last week I began to leg into Short positions in CVS and GD as price entered key resistance areas. Should we receive further confirmation of weakness going forward, I will begin to increase the position size in these names. For now they remain test positions as the market has managed to show strength. 

FB

FB continues to be a solid holding, both structurally and tactically. While the SP500 makes a series lower high/lower lows, FB is making higher highs and higher lows. Should the market recover from here FB is poised to be a leader of a new uptrend. 

GE

GE remains wedged between its long-term breakout support and recent highs. A move below $28 would be seen as a negative and likely lead to a gap fill near $25. The longer the stock stays above $28 the better the likelihood that it reclaims 52-week highs. 

AEP

Utilities reversed solidly late in the week. This brief pullback comes after a 15% rally in the past couple months for AEP. It's possible a rounded bottom has formed and a "handle" type pullback over the next several weeks builds a new support base to rally from. 

PCG

The same can be said for PCG. Utes are in strong structural position, but may need some rest after the sharp rally higher. 

PM

It would not be unusual if PM consolidated above $90 here for a while. It remains in a market leadership role. Should the breakout fail we would exit below support at $86.

Short CVS 

CVS has returned to its Head/Shoulder breakdown point with momentum in a bearish range. The key level between $98-100 acted as support for 18-months and now is holding as resistance. We've seen a rally of nearly 15% over the past 3 weeks right back into all this supply. Price has been able to regain the 20 WMA, so there's a small victory for the bulls. But as long as CVS remains below $100 the risk is to the downside.

Short GD

GD is back to "the scene of the crime" from its January breakdown. GD has rallied $15/share in the last 6 weeks and is now bumped right against its declining 20 WMA. The band of overhead supply from $138-135 should provide a formidable battle for bulls to conquer. For now we will remain short below the weekly close from 12/24 at $139.85.

WATCHLIST- Long

MDT

HD

SHW

WATCHLIST- Short

BAC

GILD

UPS

So You Want To Be a Bull?

There has been a lot made of the recent bounce in the markets. The SP500 has rallied some 6% off the lows of last Thursday and has emboldened many to call the low for the year. The SP500 has defended support and squeezed some shorts. It has also coerced nervous, sidelined Bulls fearing missing out on any upside moves.

Active fund managers are holding large Cash positions and we are seeing sentiment extremes surpassing the 2003 or 2009 bear market lows:

Chart courtesy of @RyanDetrick

So the gist is investors are scared, active managers are highly defensive and the market has rallied sharply, quickly. Does any of this mean the lows are set? No it does not. Could the lows be in already? Sure they could. But how are you suppose to figure out what to listen to and how to position?

I'm gonna make this really easy for you: FB, AMZN, and GOOGL. This is all you need to focus on in the coming week to know if we are going to experience follow-through to the upside or if lower lows are coming next. 

These 3 stocks were among the true market leaders last year. Yet in 2016 they've been dumped and have led to the downside. These are your typical "risk-on", bull market growth stocks. For any lasting rally to stick we need to see money rotate into the more risk sensitive and offensive stocks. 

We interact with the markets in a series of "If/Then" propositions. If A happens, then we do this. If B happens, then we do that. Looking at the structure of these three on the short-term timeframes will tell us everything we need to know about the coming market direction.

FB 30 Minute Bars

IF: Facebook gaps higher and through $105 resistance, THEN: I will Buy FB for a trade with stops below $103.

IF: Facebook gaps lower and through $103 support, THEN: I will Sell/Short FB for a trade with stops above $105.


GOOGL

The same goes for GOOGL. For bullish bets I'm looking for a gap above the recent tight trading range from Friday. Clearing $723 gets me Long with stops below the swing low at $714.

If GOOGL gaps lower and through support at $714, then I will Sell GOOGL with stops above the consolidation at $723

AMZN

I'll swing Long AMZN with a breakout above the neckline resistance at $540.

SP500 

When I talk about "structure" I'm looking for momentum to hold a positive range, clearly defined swing highs and lows (resistance/support), followed by tight price action near a critical swing point.

The structure of the three stocks above and the SP500 resemble each other. They sit at an inflection point and we don't know which way they will break. If I'm putting my money down I want to be positioned in the leading issues. If the market is going to breakout, these stocks will do so harder and faster than the broad index. 

With leading stocks you get the clearest picture of what's happening due to their heightened sensitivity to general market movements. If this market is going to move higher out of this base formation, participants are going to bid up higher beta stocks with better growth prospects. Likewise if the market is going to resume its longer-term trend lower, any remaining "hopeful" investors are going to continue to dump higher risk, higher valuation issues.

This is what I mean when I say if you want to know how to position going forward all you have to do is react to whatever direction these three stocks tip. Generally they are going to follow the market and will do so in an aggressive way whether that's to the upside or downside.

Longer-term this market is in a downtrend, rallies are generally selling opportunities in downtrends. However if we do see an upside resolution that holds the key 1,950 level, a further and violent chase could be on.

Also realize these are short-term trades. I am not making long-term investment decisions based on this analysis. If this market is going to squeeze higher I want to participate in my aggressive trading accounts. I will be doing so through FB, GOOGL, and AMZN. However if these moves turn out to fail and we see pressure on the new trend, I will exit quickly.

Thanks for reading.
-ZT

Banks Are Extended: Rally to Provide Selling Opportunity

When looking around the market, the major Financials look quite extended and could provide a relief bounce. To be clear however, this is a bounce in a downtrend and this rally (should it materialize) will be a selling opportunity.

This week I want to run through the $XLF Top 10 Sector Holdings and show you what I see. During the recent leg lower Financials have been the hardest hit sector. Names like $BAC, $C, and $AXP have been annihilated. Others like $GS, $AIG, and $JPM have come under duress as well.

Financials (XLF)

First lets look at the XLF. This chart shows the weekly prices of the Financial ETF since the 2007 market top. XLF is the only major S&P sector that did not recover to new highs in the recent bull market. This makes it the weakest of the major sectors and those are the places we like to target for potential short opportunities.

The XLF recovered to its 61.8 Fibonacci retracement and has since rolled to the downside. There is the chance we see a relief bounce soon, but ultimately there is very little support for the group until the $17 level. A rally from here will encounter stiff resistance near the $22-22.30 area. I will look to be a seller there. 

The sharpest rallies occur in bear market trends. The Banks are in this category now. These rallies are to be used to position short against. "Shorting into the hole" is what's referred to as taking a short position after a very sharp decline has occurred. Due to the tendency of fierce bear market rallies, shorting into the hole exposes you to the increased likelihood of being squeezed by a sharp rip. Its best to wait for the rally and position your short into a prior support, turned resistance. That way if the rally continues we can easily step aside, or if it ends at the resistance we stand to profit handsomely from the downtrend resuming in our desired direction. Risk/Reward is in our favor by waiting patiently for the setup to form.   

BAC

Bank of America is currently my favorite prospect in the market for a short position. For more than two years the stock has churned in a range between $18 and $15. Since the November high, BAC crashed $8/share down to $10 this past week, that's a 45% drop in two months. 

Seeing the volume that came in on this week's move I'm of the belief that a reversion trade is likely. The stock is trading 30% below its declining 20 WMA and is generally in a position to come back to that long-term average. 

The setup for this potential short entry will be on a sharp rally back into the prior support level at $15. This will require a 25% upward move and I expect that to take several weeks to complete. The time required will allow the declining 20 WMA to meet price near that area as well. We want to sell a rally into this confluence of resistance. 

C

Citi is very much in a similar position as BAC. The stock declined 45% from its recent high and is 30% below its declining 20 WMA. Like BAC, a substantial inflection level exists at the range lows near $46. This can be a great anchor point for new short positions. 

AXP

As you recall we held a short position in AXP from September through early January. The stock is in complete free-fall, recovering to $78 seems almost unfathomable. This will be a name to watch on a bounce, but the levels aren't quite as favorable as BAC and C above. 

GS

Goldman offers a nice clean level to short against as well. During 2015 GS built a textbook Head/Shoulder Top formation and confirmed the pattern on the January 8th breakdown. Since that break the stock has accelerated to the downside. Typically with these patterns we will see a throwback rally to the neckline support level, in this case $170-172. That will be a rally to fade should it materialize. 

AIG

JPM

WFC

USB

AIG, JPM, WFC, and USB all remain right near major support lows. Give or take a few percent these are still likely range bound. Range bound stocks don't make the best trend trades so I would avoid them for the purposes of our potential short positions. 

BRKB

SPG

BRKB and SPG remain the two strongest stocks in the XLF. Due to that fact we will avoid them for our short focus as well. 

We want to be short the weakest stocks in the weakest sectors. For our purposes the stocks to focus on out of this group are BAC, C, GS, and AXP. We have our defined levels to watch for and want to take action when the setup forms a strong risk/reward opportunity. 

It's also possible none of these setups form and we miss out on a trade. If that's the case, so be it. We wait for our pitch. There will always be another trade around the corner that fits our parameters. 

To show exactly what I look for in a short setup I want to review the Emerging Markets ETF EEM. 

EEM

Here is the Emerging Markets EFT EEM. The group traded mostly sideways for a few years, moving between $46 and $36. During the August decline EEM looked a lot like how BAC and C look currently. It declined from $44 down to $30 in a little over 3 months time, or -32%. 

At the low of its decline EEM was trading right around 30% below its declining 20 WMA. With the Fall recovery in the market, EEM was able to bounce back to the prior support level at $36 where it met its rapidly declining 20 WMA. This was the signal to take a short position with a stop loss placed anywhere near the $37-$39 area depending on your timeframe and risk tolerance. Once EEM rolled back over, confirming the resistance, stops could be quickly trailed to the entry point at $36. 

Depending on your strategy you could outright borrow shares to short or make the play via Put options. Personally I prefer using options to trade short positions for a few reasons. First I like defined risk. Part of the risk of shorting is the potential for unlimited risk should the trade move substantially against you. Since you borrow the shares, you owe your broker should anything adverse happen to your trade. This is not something I'm comfortable with. When using Put options you are only ever responsible for the premium you paid for the options. 

Secondly options trade with leverage. Once you define your total risk, the worst you can lose is 100% of your investment (although you should not let your Puts expire worthless, that's just poor management). But the potential gain due to the leveraged nature of options you can easily make 300, 500, or even exponentially more depending on how everything unfolds. Generally I shoot for a max loss of 50% of my premium and a typical gain of 200-300%. That amounts to a nearly 6-1 reward to risk. And occasionally gains can become much larger than that.

Lastly, options obtain their value from price of the stock, time until expiration, and volatility. When trading Put options, volatility tends to increase more rapidly on downside moves. Therefore your trade gains extra steam quickly should price begin to move strongly in your direction.

There are drawbacks to being Long options however as well. Often the stock can move in your desired direction, but due to the decay of the time factor, your trade will actually lose money even though you have been right in the general direction. This is also why I like to be more in and out with option trades. You want to jump in when prices are likely to accelerate quickly, but this is easier said than done. 

Whatever your preferred strategy just be sure you are taking on a risk you are able to withstand and stick to your discipline. Shorting stock is generally more difficult that being Long. The market tends to be in an upward trajectory roughly 75% of the time, so the odds are mostly against being short for a long period of time. When the market turns downward however there will often be opportunities to those who are watching closely and have a defined plan to execute from.

Thanks for reading
-ZT

Hurry Up and Crash?

I'm hearing a lot of frustration coming from traders on social media recently regarding the slow motion churn that is going on near major support levels for the market. Dip buyers are weak but present, short sellers are getting impatient, and sentiment studies say we need more fear.

The trends are pointing lower, yes. But the persistence that we need to just hurry up and crash are growing by the day. Participants say we need capitulation until a meaningful low can be set, they say substantial fear is lacking.

The consensus I am finding is how much in a hurry everyone is for this decline to resolve itself so we can all carry on with our normally scheduled market performance. I'm not a fan of market analogies, but if this decline is to become a substantial decline (which many feel it will) it may take a long time to play out. Take the 2008 Financial Crisis decline for example:

SP500 Top Formation 2007

 Looking at the 2007 market top I see many parallels to out current structure. This doesn't mean our current market has to implode like 2008, but we aren't ruling anything out. The SP500 took the entire year of 2007 to complete its top pattern. The breakdown began to tremor in November and then staged a bounce attempt into its then declining and crossing 20/50 Week MA's. The next leg lower broke the major support lows from August and November, beginning the first leg of the decline.

Our current position I believe resembles the January '08 follow through move. If this is anywhere close to being accurate, the insistence that we "get on with the plunge already" may lead to much more frustration going forward.

Most people's memory of the Financial Crisis was that of a sudden and dramatic event. Movies and financial media basically start with Lehman Brothers' bankruptcy at the end of September 2008, which then was followed by the two large declines the opening week of October and the subsequent week that ended 10/10/08. In reality however the downtrend was 9-10 months in the making by that time.

My point is that the most devastating decline to US stocks churned and gradually rolled lower over the course of a year before the real damage hit. Those expecting the current downtrend to be a one and done type of drop and pop may have a frustrating year ahead of them.

SP500 '08 churn and retest

Following the January breakdown we saw a substantial drop the next week. But for all intents and purposes the market continued to churn between 1300-1400 for 6-months. During this time dip buyers continued to plug away and were able to grind prices back to the January breakdown level, retesting prior support, turned resistance. Once that rally failed the S&P resumed lower but then dug in for another 3-months before the actual bottom dropped out.

If we look at our current market we can theorize a similar scenario. Again 2016 is nothing more than 2016, its not 2008 and no two market events are the same. But human behavior does tend to repeat, so we can work through a potential scenario where we don't just implode but rather grind and churn to most participant's displeasure.

SP500 Current Position with Similar Projection

 Here is our current market and rounded top pattern. Like the 2007 top, it formed over the period of a year +. We have seen the move confirm lower as the recent January/February declines have created a lower low beneath key support. Now everybody's itching for some fantastic implosion lower, but what if we get a rollover like early 2008?

I've drawn (crudely) a similar scenario to the post 2008 support failure. If the analogy plays along we could see prices hanging around current levels well into late summer or longer.

My intention is not to be highly complacent at this point. I'm not complacent, I'm a trend trader and intermediate trends are lower. I'm highly defensive in my posture and intend to stay that way until new setups form and trigger based on my signals. The intent of this post is to point out that every move in the market doesn't have to be some instant, dramatic event that scars us for life.

Sometimes markets decline. Sometimes they decline a little and sometimes they decline a lot. Our job is to focus on what's in front of us and attempt not to develop biases to what we think should or will play out. We need to remain open-minded to a recovery in stocks from here. We need to remain open-minded to an epic crash unfolding next week. And we also need to remain open-minded that maybe we just chop in a relentless, brain battering trading range for years to come. 

The main point is none of us know what's coming next and the market owes us nothing. It will do as it pleases and we need to be prepared for whatever path that may be. 

Thanks for reading 

-ZT