The U.S. stock market indices continue to consolidate at higher levels, trending in a sideways fashion while trying to work off overbought conditions. Pundits keep calling for an imminent correction that fails to materialize as
ole quiver voice and his merry band of money printing cohorts at the Fed continue to pump
$85 BILLION of "virtual money" into the financial system every month.
There are rumblings of a potential diamond top reversal in the transportation average, and a similar pattern can be seen in the S&P 500. There's also mention on numerous blogs of a broadening top. Both patterns need to be monitored, but for now stocks continue to act in a constructive manner.
Traders want a pullback. Traders NEED a pullback -especially those who are under invested. And at some point we'll get one.
Evaluate your portfolio one stock at a time, taking partial profits on quick 5-8% gains and holding some for potential longer term gains. Focus on trading what is in front of you; not what could or may happen in the future.
If you're not able to get in sync with the trend and make progress, reduce your position sizes or step away from the trading desk altogether and reassess. Reducing position sizes takes a lot of the stress away because if you get hit it won't sting so bad. It helps build your confidence back up once you start having a few positions work for you.
And
always cut losses quickly, the quicker the better. You want to be correct in your buys right from the start. If your timing is off, so be it; you can always re-enter the position later.
Keeping your portfolio pruned of losers and positioned into stocks making progress will keep you in a much better frame of mind, and much more profitable.
All this said, this is not a time to be complacent. The move we've seen is eerily similar to that from the end of 2011 into the early part of 2012. Right about
this time last February I started getting
stopped out of my individual stocks even while the indices continued higher. It was very frustrating for me, but what it was signalling was that a small pullback was imminent.
Here are a few setups for
short term trades, some of which were posted to Twitter during the trading day on Wednesday. Note that many of them are stocks trading well off their highs. Watch in particular the beaten down "industrial metals & minerals" sector on Finviz.com.
ALWAYS use stop losses to limit the downside to your portfolio.
Charts shown in this post:
SPX, IYT, PBW, AMSC, REE, GTAT, RRC, PVA, GST, ATL, BAS, JRCC
Click on charts to enlarge view:
