The Trend Lives

A random assortment of stuff tonight, I’ll post a video tomorrow morning on new setups I’m seeing.

Let’s just take a quick look at how I judge trend from a systems trading perspective.  For anyone who isn’t familiar, I use the 20 and 55 day donchian channels to determine trend.

As you can see, we technically remain in an uptrend as we have not made a new 20 day low since the break of the 55 day high back in mid March.  We are still above a rising 50 day moving average, another major indicator of positive trend, and now back above the 20 day moving average.

So you may ask, why am I now 2/3 cash if my two main indicators of trend tell me that the market is still quite healthy.  Frankly, I could be wrong, the last two weeks have been quite tough as I’ve giving back a good deal of alpha as I’ve reigned in long exposure, been chopped up in a few names, and have generally lost touch with this market.  After being so hot for the past few months I’m not crying to anyone, it’s been a great year so far, and I’m willing to be a little wrong here to be a lot right if and when the market does pull back.

As well, here are the reasons why I believe we are at or very near an intermediate term top in the market and ready for a 5-10% pull back.

The past few weeks look like distribution to me, plain and simple.  I see them running the market up on light volume, and dropping it on heavy volume.  We put together two days, Monday and Tuesday, were the bears were able to close the market on its lows, that hasn’t happened since February.

Many many many leadings stocks have been crushed.  Every day a hand full of names from my momentum watch lists falls off the wagon.  The market isn’t going anywhere significant to the upside without me while leadings stocks are not acting right.  Yes, we could see rotation into other names, that is normal, but having relative strength names get crushed for 8-10% day after day is not healthy.

Breakouts are failing.  Where as during this rally just about every great technical breakout setup has succeeded, they are now failing.  See examples in $DISH and $APA, just two but perfect examples of what I’m talking about.

What the hell happened to the oil service and drilling names today?  Yes, I know that $CAM and $HAL have exposure to the $BP oil spill mess, but this is not normal action.  $BP closed down greater than 8%, fundamentally this oil spill is a drop in the bucket for them, pun intended.  Crude looks like it’s about to break out and the energy names are getting crushed, something doesn’t fit here.  I’m long gasoline via $UGA and I like my position, but something smells afoul in energy equity land.

$DNDN went nuts today on some fundamental data, I have no clue what it is, I don’t trade the stock and never will.  Here’s what I know, every time this stock goes nuts, you can pretty much set your alarm for frothy toppy market.  I’m not saying the stock isn’t worth what it’s trading at, I have no clue, I just know what it normally represents for the broader market.

People are chasing the market now, I hear it every day, they think it’ll never go down again.  I’m not saying we don’t go to 1,300, I have no clue, but I’m pretty sure that this market is tired and needs to correct over price or over time, and I’m willing to sit heavily in cash to find out which.  I’ll miss some great setups for sure while I wait, I already have, but the risk now is to the downside.

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