Before I take you through July 24th, the second installment in this
two-parter, a few brief comments based on some of the email I've been getting. 1) If you've been having problems trading the past few days, you have company. It's always rough when the market makes a sharp "V" turn and you're trying to play both sides. No, scratch that. It's not rough, it's a bitch. 2) If the charts aren't especially obvious to you -- and 99% of what I'm looking at sure isn't -- then I always try to err on the side of caution. It's easy to feel you should be trading
, and so you force a few that don't quite match up with your normal methodology. And generally those are losers.
No, best to sit on the sidelines until things clear up. Believe me, I'm always frustrated to watch the market make a major move with me having nothing going. But, the fact is, no one can catch every move. No one. And if it really is a major move, then there's always plenty of time to join in later.
All right, I'm done with my warmed-over sermonizing. Maybe I needed to hear it, as much as say it.
Okay, and now for July 24th...
If you look back on your charts, you'll see July 23rd was a particularly nasty day, with the market down about 100 points and the A/D line continuing to collapse.
Therefore, on the 24th, I wasn't expecting to get a lot of long candidates and didn't. Specifically, I had seven GBS Classic longs and 17 Wesson '45 candidates. On the flip side, I had 56 short candidates.
Now, here's a big difference between the way I trade and the way someone like Jim Cramer trades. No doubt he sees a day like that, and he's thinking the market's oversold and is trying to do a bit of bottom fishing. No problem with that, in fact terrific profits if you get it right.
On the other hand, I generally assume the downward trend will continue, particularly if I wind up with more short finalists than longs. So, even if the market was down 500 points, and I had only shorts that looked good, I'd go with those, rather than try to gauge if the market was oversold.
Now, of course, there's caution here. After a day like the 23rd, the bottom-fishing mentality is pervasive. (In fact, as I write this on Friday, the Nasdaq is making another strong move up.) And, yes, every once in a while, I will overstay my welcome with a trend -- particularly a down trend -- and get smashed. Nevertheless, I'd rather ride it down and be right 80% of the time than continually feel for a bottom.
Given that set-up, though, I still diligently looked for longs on the 24th, but came up with nothing. However, there were a few candidates you might have seen.
GRB. Soooo close, but not quite. A good example where in the past I might have pressed this one. Not now, and as you can see, a good call.
CCSC is a good example of a
that's a real sucker play. You look at it, and say, "a strong move like that on a day when the market rolled over? Wow, that must mean CCSC is going to the moon." Unfortunately, you can see CCSC made its breakout a few days earlier, and from 7/24 on, the only further move it made was down. Another loser avoided.
XLSW is an interesting
, and here's where a little judgment interceded. If the market had been steadily moving up, I'd say, yeah, it looks like a decent long. But, given that it's a judgment call, and the market was dropping, why risk it? Glad I passed. Another 6% loss avoided.
... except it failed both my EPS screen and my liquidity screen. I skipped it, but it was a winner. Still, by missing the other three losers, a net "gain" overall for me.
Now on the short side, it is very easy to go hog wild and start thinking everything you look at is a winner. I fall into that so easily, I consciously try hard to take only the no-brainers. Those are the stocks you look at and if you were long, you'd be scared to death. Sure, you just know some "clever" trader will think it's now a buying opportunity. In fact, that's what I'm always hoping: The savvy guys come in and bid the stock up. Then the
savvy guys come in and hit those bids hard, thereby getting a much better fill than they were counting on. And if enough people keep hitting those bids, I just ride the stock down, take my profits and move on.
That's why with 56 short candidates, I only had three finalists:
The first one, IRIDF, was an obvious
. Similar to
OLCMF from last week's column, I couldn't find a clear trend or support line. But this time, I wanted to go short only because this stock looked sunk. The only problem?
-- in a rare miss -- couldn't locate any inventory. Yep, it collapsed for a winner. Rats!
TOM was a clear
of a break down from a clear support line. It's also a case, though, of getting out with your profits and moving on. If I had tried to stretch this single into a double, I'd have been handed a loser instead of a winner. A little lucky on this one, but I'll take it.
Finally, AZPN had a nasty
, but that "up" candle is bothersome. It used to be that I didn't ever short stocks that opened at their low but finished near their high. However, I've learned that sometimes that's good: The bottom dippers were trying to get a head start ... only to be crushed in the next day or so. So, AZPN was a go, and sure enough, a good strong fill, and I was out the next day.
But that was it for the shorts: three pretty straightforward picks that I'd have kicked myself if I'd have skipped.
And that's a good way to wrap up this two-parter: It doesn't matter if you pick stocks like I do, or if you have your own method. What does matter is that you want to be consistent in what you look for and how you make your selections. My wife always asks me how the day went, and I dutifully give her my "mark to market" total. That's her gauge of how well I did, and being bottom-line-oriented, I can't blame her.
But, that's not my gauge of how well I did. My gauge: I traded every stock that met my criteria, and I avoided every stock that didn't. I specifically forced nothing, nor shied away from any obvious picks. I didn't let outside news, or
influence my views. I just looked at charts, evaluated and called in my orders. If I did all those, then damn, I had a good day.
Gary B. Smith is a freelance writer who trades for his own account from his Connecticut home using technical analysis. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. This column, Technician's Take, appears every Monday. Smith also writes Charted Territory, which appears every Wednesday, and TSC
Technical Forum, which runs Saturdays.