Weekend Review 11/01/2103

Had one sold in May and went away, one would have missed an 18% move in the Russel and Nasdaq, an 11% move in the SPX, and a 6% move in the DOW. The theme since May has been marginal high and shallow pullback which is most pronounced on a chart of the DOW, but can also bee seen with subtle variations across the other three as well.

$RUT

COMPQ

$SPX

$INDU

Part of the challenge of swing trading with market timing during this environment has been the sharp V-shaped rallies from the lows that swiftly surge breadth readings from one side of the pendulum to the other on a shorter time frame while keeping the longer term breadth trends extreme. There's a small window of opportunity to exploit from the pivot low of the correction to the pivot high, and if not already positioned much of the move is missed. The problem of waiting for the move to digest setting up tighter chart patterns is that by the time they break out the tendency to fade has been high due to the general market being extended with fewer stocks participating. One of the adjustments I've continued to make is moving away from swing trades on a shorter duration and switching to catalyst and earnings based trades with a longer holding period.   

Looking at the breadth numbers I follow a similar situation is arising yet again. The medium and longer term breadth readings for the most part are extended here, but the shorter term readings have begun to move towards the other end of the specturm.

This has been the character and nature of the market since May 2013. The last lengthy correction that wiped the breadth slate clean was September through November of last year before a linear and persistent up trend ensued. Perhaps there's a repeat and the recent October highs top ticked the market and a meaningful 5%-7% correction begins or perhaps this is just a shimmy shake to put some fear into a psychologically complacent and never ending bull story line and a spine for the bears before ripping to a marginal high yet again.

When I reflect upon the market of 2013 and what it has affirmed to me is to be alert to the harpy like lure that seduces traders to change their core methods and chase the market instead of allowing markets to come to them.  This market has forced me to rethink some of my (mis)conceptions about trading, entry/exit rules, vehicle selection and many other thoughts too numerous to lay out, however the one thing that I've held steadfastly to like a mast has been my core belief in momentum, that the market cycles from range contraction to expansion, and that there is an edge to be found here.  Some of my tactics have fluctuated but my overall strategic approach has not.