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only price pays

This tag is associated with 2 posts
Facing-a-Fear (2)

no need to fear a big drop

“News” that George Soros is shorting stocks grabbed headlines once again this week.  I don’t see why this is getting people so worked up.  Soros has supposedly been making big bearish bets since the beginning of the year.  He’s been warning of a repeat of the 2008 financial crisis and apparently has a 2.1 million share put option against the S&P 500.

I have no clue if George Soros is right.  However, I do know that “news” like this does nothing to help us make money.  We make money when we position our trades in the direction of the 8 and 21 day moving averages.  Right now these moving averages are rising, so we are bullish and long stocks.  In fact, this week the S&P 500 poked through the highs of last November, essentially negating the macro pattern of lower highs and lower lows that has controlled the big picture over the last year.

The only argument bears can make now is that this was a failed breakout which will lead to a fast drop lower.

failed move leads to a fast move?

failed move leads to a fast move lower?

I will grant that this is a possible scenario.  However, the weight of the evidence we have right now still points to higher prices.

If Mr. Soros and the bears turn out to be right, we will have plenty of time to change our stance and position our portfolios accordingly.  We would lock in profits and raise cash as our holdings give us 821x sell signals one by one.  We could look to move some money into other asset classes such as bonds and/or gold.  Finally, we may take bearish bets against stocks alongside Soros by purchasing inverse ETFs,

We will have sufficient early warning.

We have a plan of action.

There is no reason to fear.

coverears(crop)

turn down the volume

In case you hadn’t noticed, the S&P 500 has had a MONSTER rally since February 11, rising over 14%.  Just since the beginning of March, the index has risen over 137 handles!

Knowing this, look at the headlines below:

Has any of the hand-wringing about the, at times, anemic volume of this rally been helpful?  ABSOLUTELY NOT!

I understand the disbelief.  When I calculated the potential measured move of the bullish “W” formation in the S&P 500 on March 5th, I was skeptical that it would actually be reached.  Yet here we are.

measured move hit! I also put arrows on the days the articles above were published

measured move hit!  I also put arrows on the days the articles above were published

Sure this rally is getting long in the tooth.  Sure the 200 day moving average is still declining.  But we make money when price remains above the 8 and 21 day (exponential) moving averages.  Before this rally comes to an end, we are going to AT LEAST need to see a close below the yellow line in the chart above.  Getting bearish before that happens makes no sense.  These simple principles apply to anything you are trading.

Volume is noise.  Tune it out and focus on what makes you money which is price.  Like Brian Shannon, one of my virtual mentors, is known for saying: Only Price Pays.  Profits made on low volume are just as valid as profits made on high volume.

So turn down the volume and listen closely to what the price action is telling you.