Today started very promising. The bulls started early and we had a strong gap-up to open. Early volume had the stocks moving north but this was very brief before the selling started and the bulls moved to the sidelines.
The sentiment is very negative and today’s fast failing bounce only solidified those negative beliefs. Within the first hour, the market started to give up the gains until the final hour. During the final hour, we saw the computers take over once again and we closed slightly green on the day, with little trust in it.
Computerized trading is truly starting to take over which was further shown today by the trading firm Schonfeld. Schonfeld is laying off traders due to computerized trading making it much harder for them to gain advantage in this market. This shows just how nasty the market is and that you must adapt and evolve or you will surely fail. This is terrible news for the retail investor as buy-and-hold is a dead-end philosophy and now trading is becoming even more complex.
This market is in a clear downtrend and today’s action did nothing to change that. As I’m writing this, the asian markets are in the red as well. This is a significant change from last year when bounces like this would have brought us up higher than anyone would have thought. Now we are likely to be in a downtrend longer than anyone expects as the market tends to trend in one direction longer than seems logical.
In portfolio news, I sold some shares of Orient Paper (ONP) into the early strength and bought some back later in the day when it came under pressure. I have stops in place in case tomorrow’s market turns ugly. I want to ensure I do not lose on the position as trading around the core position allowed me to lock in significant profits last Friday. If the market does not selloff further, I expect ONP to still move closer to $8 or higher by this week. If the market does continue to act poorly, ONP will likely have too much resistance to overcome and get back to $8.
I will look to buy some short ETF’s if the market starts to push lower tomorrow and quickly reduce my long positions in the same breath. The problem is we are just so oversold that it is hard to believe we will not see another bounce. We have plenty of room to run north but the bulls seem too scared and the bears are clearly in control. If we do bounce, I will now watch closely to see if it fails and load up on the short ETF’s at that time. My other strategy is to watch the recent 52-week high lists for stocks that are gaining pockets of momentum. The market calls for adaptation to be successful and we will have to be prompt in doing so.
As always, do your own homework to see if you agree and I will see you in the morning. Good luck out there.
Mike
At the time of publication, Kudrna was Long ONP but positions may change at any time.
