1/30/18 Comments

The market feels dangerous to me. The following leading stocks have broken down recently: THO, OLED, WGO, AAPL, RDFN, PETS, SUPN, DVMT, NVR, AVGO, COHR, DHI, and LGIH. Luckily I held none of these. The last long trade I made was WB and LDRS on January 2. I currently own MXIM, WB, PYPL, GLD, and LDRS. I attempted one short with KEM and quickly exited. Most of my short attempts have been like this.

We have had four Hindenburg Omen signals over the last eight trading days (google the term if this is new to you). We get these from time to time. They often occur at market tops, but they also appear as false alarms. They indicate that part of the market is in its own private bear market while the major indices are rallying to new highs. Yesterday we had 204 NYSE stocks making 52-week lows and 236 stocks making 52-week highs. A few symbols have broken upper trend channel lines: SQ, AMZN, GOOGL, S&P500, Dow, NASDAQ. Leading stocks breaking down and major indices breaking upper trend lines are concerning to me. This is what one would expect in a major blow-off top such as we had in 2007.

I think the overarching story is the US dollar and interest rates. The dollar futures index has formed a head and shoulders pattern and broke the neckline to the downside three weeks ago. It is currently 14% off the recent 103.815 high made in January 2017 (the H&S head). A simple graphical construction suggests that the index has up to 12% more downside risk to 78.35 (current value 89.08). My take is that a dollar slide this low would meet some a market reaction along the way. The market had a significant correction in 2011 when the dollar went that low.

Every time the market has appeared dangerous over the last five or so years has been met with fresh buying. Is that what we will see this time? Usually, the buying occurs after a pullback. So as a minimum I expect a pullback, and then we will see.

Mike - What strategies do you employ heading into earnings season?

I noticed you mentioned holding Paypal. I had it too and felt with a 12% gain, I had enough cushion to sit through earnings. Of course my 12% gain evaporated into a 3% gain overnight!

Any wisdom would be appreciated.

Sean

[QUOTE=Sean;32695]Mike - What strategies do you employ heading into earnings season?

I noticed you mentioned holding Paypal. I had it too and felt with a 12% gain, I had enough cushion to sit through earnings. Of course my 12% gain evaporated into a 3% gain overnight!

Any wisdom would be appreciated.

Sean[/QUOTE]

Sean,
I sit if I have 6% cushion going into earnings. It didn't work for either of us this time. With any stock, there is always the risk of unexpected news. I was quite surprised about eBay dumping PYPL as a payment processor. I think I took a 4% gain.