I just wanted to check-in and let everyone know that I plan to re-engage the markets beginning next week. I continue to keep things very light for now because, in addition to the recent technology issues, my views on the market continue to mirror the comments from PIMCO’s Bill Gross earlier this week when he stated: “Never have investors reached so high for price for so low a return. Never have investors stooped so low for so much much risk”.
Keep in mind that this doesn’t mean there isn’t money to be made in the market right now because obviously there is. The trends on all time frames (long, intermediate and short-term) all remain clearly up for now while many metrics such as sentiment, short-interest, overbought readings, etc.. remain at or near levels that have historically been associated with significant tops. Therefore, we have a mix of cross-currents that make trading difficult at this time: Short trades continue to prove very difficult as they are clearly counter-trend trades and although finally starting to weaken, breadth has been strong as of late (all boats are lifted in a rising tide). On the flip-side, entering new long positions with the market so extended just doesn’t offer an attractive R/R. e.g. I typically look for a minimum R/R ratio (risk to return ratio) of 3:1. Therefore, finding new long trading candidates that it will most likely go up another 30% before pulling back 10% from current levels is becoming very challenging. This is just one of those times that a one-sided, momentum fueled market trumps most technicals and with the technology issues that I’ve run into, I’m using this week to step away from trading and focus on more productive issues. Again, regardless of market conditions over the next few days, I will begin focusing my efforts on updating the existing trades and looking for some new trade ideas by early next week.