Market on hold as earning season progresses
The earning season is shaping up to be good after initial trends showing some slowdown. But recent trends clearly show double digit growth again. With earnings as a backdrop the markets have been largely trading in range. New leaders, primarily driven by recent earnings news are emerging. The small caps and mid caps are again attracting interest.
Overall the churning is providing lots of opportunities. Last week for 5 days in a row there were over 100 breakouts. The 65 day bullish bearish ratio is currently at 947/222. Levels below 200 indicate high probability of correction. So expect the market this week to again be range bound.
If you have been trading any of the earnings based method like earnings breakouts or IBD 200, you should not be complaining at all. Even the momentum based methods I have talked about many times have been very profitable so far. A well designed trading conveyor belt keeps on churning out opportunities. Most of the effort involved in such systematic approach is one time. 90% of the effort is in designing the system and the thinking which goes behind it, execution and actual trading is just 10% effort.
For over a year I have been talking about the same things and same methods and concepts. I have traded these things successfully for over 5 years. The basic philosophy behind all these methods and concepts is to find large edge systems. If you find concept with very significant edge the tactical stuff like entry or entering next day does not impact your trading. The point is if you set out to find one tick or 1% edge, you will find it, if you set out to find 100% plus edge, you will find it.Temperamentally I like focusing on big ideas and I spend most of the time researching that area.
Over the weekend I exchanged emails with lot of traders about the significant move concept, I talked about last week.I will have a post about some of the issues raised in those emails. More than that what strikes me most after answering over 2 dozen emails about it and also interacting with lot of traders over the years is that some traders have very good trading instincts and can understand and capitalise on opportunities immediately while most struggling traders have very different instincts. I will have more about this later in my post : Do successful traders have different mental models
Overall the churning is providing lots of opportunities. Last week for 5 days in a row there were over 100 breakouts. The 65 day bullish bearish ratio is currently at 947/222. Levels below 200 indicate high probability of correction. So expect the market this week to again be range bound.
If you have been trading any of the earnings based method like earnings breakouts or IBD 200, you should not be complaining at all. Even the momentum based methods I have talked about many times have been very profitable so far. A well designed trading conveyor belt keeps on churning out opportunities. Most of the effort involved in such systematic approach is one time. 90% of the effort is in designing the system and the thinking which goes behind it, execution and actual trading is just 10% effort.
For over a year I have been talking about the same things and same methods and concepts. I have traded these things successfully for over 5 years. The basic philosophy behind all these methods and concepts is to find large edge systems. If you find concept with very significant edge the tactical stuff like entry or entering next day does not impact your trading. The point is if you set out to find one tick or 1% edge, you will find it, if you set out to find 100% plus edge, you will find it.Temperamentally I like focusing on big ideas and I spend most of the time researching that area.
Over the weekend I exchanged emails with lot of traders about the significant move concept, I talked about last week.I will have a post about some of the issues raised in those emails. More than that what strikes me most after answering over 2 dozen emails about it and also interacting with lot of traders over the years is that some traders have very good trading instincts and can understand and capitalise on opportunities immediately while most struggling traders have very different instincts. I will have more about this later in my post : Do successful traders have different mental models
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7 comments:
What intrigues me is that, although our models have differences, our approaches are similar: backtesting, anomalies, focus on issues that others ignore. Also, we are both finding little conveyor belts of ideas (I like that phrase!) to trade, even though most times they are not the same ideas!
Abso-frickin'-lootly no complaints about this market! Unlike the dweebs who are focused on macro issues or trying to trade the QQQQ bearishly, looking at individual stocks is proving to be worthwhile!
Complaining about market is something I do not understand.
Markets are the way they are. My central hypothesis is markets are not controllable but my reaction to them and the methods I use to trade them is completely under my control. The trading mix used to trade the markets is completely under traders control.
My theory is that people trade mediocre system and follow wrong theories and wrong people is because they want mediocre results.People get great satisfaction from being part of cult that celebrate mediocrity. The need and satisfaction from cult following is greater than their desire to trade profitably.
As to conveyor belts, well I spent years working for DHL and FeDex francisee where conveyor belts were at the heart of the operations.
Reminds me of Seykota who said people always get what they want out of markets, some just want bad results!
I have made consistent calls on the market lately but I am complaining about today's chop. Only a few good plays in the indexes this morning for me.
I think this is a good statement, "90% of the effort is in designing the system and the thinking which goes behind it, execution and actual trading is just 10% effort." for the stock traders.
It is the reverse for index traders though.
There are a few opportunities today. CECE, NYNY, HRT, HLYS, TZOO.
TZOO to report tomorrow. It has been consolidating for several months betweeen $30 and $34 on reduced volume. An earning surpise would sent this stock into orbit but a miss would be bad. It has been up sharply the past two days but I have not taken a position. I can't decide if want to gamble on a surprise or wait until after earnings announced. I'll probably wait.
TZOO has very low float of 7.5 million, so it makes wild moves.
Overall I am a lot cautious here as the 65 day bull bear indicator is approaching 200. 5 days of 100 plus breakouts. Plus some stocks are flying in gaps, so correction is around the corner.
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