Reclaiming all of Friday’s losses

A strong up day in the markets as we snap back from Friday’s plunge.  All the traders who piled in on the short side after the dismal jobs report are getting their clock cleaned today.  This morning’s rally has pretty wiped out all of Friday’s sell-off and is yet another example of the obvious trade being the wrong trade.  We’ll see if these early gains hold up through the day, but so far the market is marching higher and most traders are scrambling as they find themselves on the wrong side of the trade.  No doubt this could continue for a couple more days as bearish traders are forced to close out their short positions.

Today is shaping up to be an excellent follow-through-day, if only it wasn’t day three of a rally attempt.  No matter how great today’s price action looks, we still need a strong rally day tomorrow or later to confirm a new uptrend.

It appears this summer is shaping up with a similar choppy feel as last summer, except without the extreme volatility.  Last summer we were up and down 5 and 10% every couple days, this summer the moves have been far more moderate.  No doubt the current market is nervous about headlines, but it is less panicky and irrational than last summer.  We should expect this trading range to stick around for a while unless Merkel shocks the world and does an about-face by suddenly supporting Euro bonds and money printing.  I have no doubt Europe will figure this thing out, it will just take a bit of negotiating and compromise.  And as we all know, the political process is both messy and drawn-out, as any resolution won’t be reached until it looks like everything is ready to collapse.  Brinkmanship is the name of the game in politics and that is what we should prepare for.  But the market has a hard time coping with the back and forth, and thus the choppiness will continue.  But as we approach the end of the year and the whole thing hasn’t unraveled, more speculative traders will get the courage to start going long in a meaningful way.  Not long after, others will fall in line, pushing the markets higher and the strength will continue as the stragglers chase to keep up.

Former darling TPX is getting pounded today, down 50% and is 75% off of its 52wk high of just two months ago.  The higher they go, the harder they fall and is yet another highflier with an extreme valuation coming back to earth.  CAN SLIM is a trading strategy, not an investing strategy.  Don’t fall in love with a stock, just date them.  As O’Neil often says, all stocks are bad, unless they go up.  We can now throw TPX in the same bin as recent blow-ups like NFLX, OPEN, and GMCR and previous crashes like AOL, PALM, CSCO, FSLR, RIMM and CROX.  And the same thing will happen going forward.  Always be warry, knowing there are other hot stocks in the IBD50 whose days are numbered.  The best way to cope with this risk is to take profits early, sidestep pullbacks, and roll your profits into the next big thing.  Follow those simple rules and it will keep you from giving back all your profits on your best trades.  It is easy to make money in the stock market, the hard part is keeping it.

Stay safe