We can see from the charts below that this market is in a wide range. How do you play it? I'm not generally into playing rangebound markets with respect to a daily chart, but the intraday charts offer some interesting opportunities. However, we can't play/stay with trades as we normally might do based on the daily charts. Why is that? The intraday (15 min, hourly) technicals will move much faster than a daily chart, and you can be left holding the bag if you wait too long. Some of the keys to success in trading intraday charts:
* Define your risk - know when a pattern will break and when you will exit that trade
* Keep expectations modest - it's not necessary to hit for the homerun in this market - even 25-50% gains are enough to carry you
* PAY ATTENTION - I find many traders put on positions and just let them loose - sure fire way to lose if you are not on top of it
* Take losses - Seems counterintuitive to winning, but accept that you will get it wrong, just cut your losses short before they become a problem
* Book it - This is a market with no memory and if you have a big winner and want to stay too long you'll likely get burned. Pigs get fat, hogs get slaughtered.
These rules are not any different across various timeframes, but certainly some can be 'relaxed' a bit for longer-term trades. Just be mindful of the type of environment that we're in and play it accordingly.
As the Election Nears...
I mentioned a few weeks back that market players will start to focus on the midterm elections. We're about ten weeks away and the desired result for Wall Street may be gridlock, or where the parties in power between the White House and Congress are different. Obviously we have democratic President as well as two democratic houses. However, most of the voting public is not pleased with the results of the first two years of the Administration. In fact, poll ratings are significantly negative for the democrats. Republicans are building up some support, if just for only the failure of the party in power to get the economy moving forward. Why is gridlock good for Wall Street? Simply put, the agenda of one party is likely compromised and will lead to inaction in policy. No action amid an uncertain environment is applauded by investors/traders. We saw proof of this in the early 90's under the Clinton Administration, when the markets took off after the 1994 midterms.
...Sentiment Will Start to Shift
As the dust starts to clear so will the uncertainty be removed. Caution is warranted when the future is cloudy. Why would investors, traders or companies for that matter take excess risk? What we currently have here is an environment of 'questions' and few 'answers'. Have we heard of any viable solutions to the awful jobless situation? Has housing truly bottomed, and if not where/when will that occur? These issues are just the tip of the iceberg and are constantly on the minds of traders. It's no surprise the markets are where they are at for the year - down 4-6% - and not giving any indication of improvement. Recent sentiment shows consumers are confused, worried and pulling back on purchases. This type of uncertainty is worrisome for an economy that relies on the consumer to drive 70% of the GDP. Now, sentiment can shift on a dime but it will take a mounting of evidence to convince the crowd the economy is getting better. Seeing is believing. Perhaps a shifting of power is just what the doctor ordered. Removing the uncertainty is a GOOD thing.
Trade Well,
BigTrends.com
