After a Fed-induced rally on Friday, the market is cooling off in pre-market trading. SPY is off .24% while QQQ is off .39%.
My view is to buy on weakness. Ideally, we get a soft market into Wednesday which would create a nice high % setup for going long either in the index’s or on any swing trade setups.
I learned a long time ago that timing swing trades needs to be correlated with your view of where the overall market is headed. I know many think that stock picking wins out. But on swing trades that is not the way it works. If the market has short-term positive expectations your swing trades will do much better.
However, if the market is overbought with divergences everywhere, swing trades have a higher probability of failing. Swing trades cannot be taken with blinders on to the market as a whole. I have learned this through fighting the markets in real time. It is not pretty:)
Today it is a neutral day for swing trading. The market is slightly overbought and when that is worked off by way of a pullback or consolidation its time to start looking again to initiate swings.
I exited GEO on Friday. This was a rare swing trade that lasted over 30 days. I entered Geo on 12/29 at 35.62 and exited 2/3 at 41.21. That is a 15.69% gain in a bit over a month.
The important take away on this trade is I let my profits ride. No quick gains. I had an exit strategy and stuck with it. You will find that if you have a method of letting profits ride you will do much better and also not need as high a win rate on your trades.
Another trade I shared was in GLD. I entered this trade 12/21 at 108.25. I am still in the trade and it is gaping up this morning trading at 117.05. So I am holding onto an 8.12% gain.
This trade is a bit different than GEO. I have a Quant system I have used for years now in GLD. It is one of the few systems I follow blindly for both entries and exits.
In addition on Friday, I exited my mean reversion trade in SPY via SSO. I entered the trade 1/31 at 78.96 and exited the trade 2/3 at 79.89 resulting in a 1.17 % gain in 3 trading days.
These mean reversion trades are not for everyone. They have no stops and are subject to bigger drawdowns when things go wrong. The extreme example is in 2008 when mean reversion traders got hammered leaving many to wonder if mean reversion was dead in the water.
Myself, I think it is still one of the best strategies to trade but before you do you need to get a thorough education on exactly what to expect.
If anyone has an interest in learning about mean reversion just send me an email and I can send you some links that I feel are the best at learning mean reversion trading.
On the Political and Geopolitical front, the biggest news to stay on top of is the elections in Europe. We are in the midst of the Brexit fallout, and I suspect there is more to come.
The EU it is my opinion that there will be more countries exiting. I do not see anything that will stop this trend from continuing. That will in the short term create uncertainty in the markets which translates to volatility.
If you’re a trader you need to know when the elections are coming up and who the players are in each election and their position on staying in the EU.
One other item to stay abreast of is the financial health of Greece and for that matter some of the other smaller EU countries. It’s early but there have been some rumblings of Greece being in default again. As you recall this caused havoc in the markets last time this issue surfaced.
At home, a very disconcerting event happened over the weekend that does not bode well for the political environment. The minority leader of the Senate was leading demonstrations in the streets with the words “Dump Trump”.
Now, if this were an election year it would not be that disconcerting. But we just had our elections. No matter where you are on the political spectrum, assuming it’s in the middle, this has got to cause you some concern.
What exactly does the Minority leader of the Senate have in mind when he leads protests to dump trump just two months after the election?
Perhaps this is why Congress’ approval rating is below 15%.
Leaders should be calming the hysteria and concentrating on running the government not promoting hysteria. If this does not end soon who knows where it will lead to. In addition, so far the markets are ignoring this but for how much longer?
Those are my thoughts for a Monday morning:)
If you want to follow some of my trades along with my thoughts typically given after the open you can go to @rickjswings. Typically I talk about the overall day expected with the markets and also give some levels on the ES and NQ for failed breakout scalping.
It’s my private twitter feed for the stock market and its free. Sports Handicapping is the subscription-based part of this site. But considering the cost of joining it’s almost free:)
Good Luck Today
RickJ
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