Coming into this week I was on alert
for a stall day where the number of stocks up 4% to down 4% were
under 100 and in close proximity to each other. Through documenting
these numbers daily I've developed a healthy respect this signal
gives me when indexes are near their highs or a fresh breadth thrust
coincides. In addition I was on alert for outright selling. Either
of these events happening would clue me in that the risk appetite in
the general market was changing and I would need to adjust as well.
Over the past two days both of these happened.
Looking at the numbers, on 01/29 there
were 69 stocks up 4% and 70 down which qualified as a stall day. Today there were 62 up and 108 down which is selling. This
selling is more pronounced when looking at the number of stocks that
were up yesterday 25% in a quarter (1224) and today (1104.) This
also is reflected in the number of stocks up 25% in a month as of
yesterday (117) and today (82) From my perspective market risk has
changed here and as a result I've liquidated my positions down to
two. I know from experience that when market risk increases so does
my stress tolerance. I've learned from hard knocks that having too
much of my capital at risk during these periods is a bigger risk than
the market itself as I'm prone to mistakes and trading
inefficiencies. Dropping down in size makes it easier for me to
manage the trades that I have open while avoiding the discomforts of
trading too large during periods of uncertainty.
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| MM |
I am still finding set-ups to trade
from the long side, but I'm also noticing a number of stocks have
taken some dings this week and the number of stocks that look like
short set-ups are increasing as well. My bias is still to the long
side until further evidence mounts to the contrary. A pullback is
not unreasonable here setting the table for another upside move, but
for the moment I'm not going to force the issue and will bide my time
and wait for the breadth numbers to line up again and give me a
cleaner edge.
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