Monday, March 5, 2012

Green Stocks on Red Days

Monday. Enough said.

Trading Account Update
No changes in trading positions. BANR was actually green all day today as was WRI. WFM is still holding up well. This morning's selling was a bit more nasty than usual for 2012, but buyers came back in and bought stocks for the second half of the day.

There was plenty of grumbling today about a possible China slow down as well as the Fed coming out via their favorite channel, WSJ's John Hilsenrath, and hinted maybe they are holding off on more stimulus. Not a very friendly mix at all. For now it pays to view market action rather than try and over think what may come of these two important new stories. Keep in mind that money managers have been putting cash into stocks (as noted by The Reformed Broker) and that is unlikely to go full reverse without clear data a slowdown is at hand.

Green Stocks on Red Days
Over the past couple of weeks there have actually been some down days with plenty of red showing in stocks. Down days need not be hated or feared though, sometimes they actually can help you see a new direction.

First off, some disclaimers. This post pertains to a generally up trending market or one that is set in a range sideways. Down trend markets get a few more layers of complication and I am leaving that out for now. Green stocks on red days is not usually a one day event that you can pin a whole trading plan around, but more of a weight of evidence sort of thing. With that said, here we go.

On down days I know I tend to focus most on any names I am long. That's natural and makes sense. Second up for most will be the big "tell" stocks or commodities like AAPL, SLV, or maybe copper and oil. Again, this makes sense and is intuitive.

But on down days, or even better, a string of them the market may hint or whisper where the action may turn up next.

You can skip over any ETF short like a PSQ or a TZA. Funny thing but on a down day I will read how the short funds are "working". Really? I kind of hope so. Also any stock that has had positive earnings news or positive news headlines will merit a question mark as that could be a one day pop sort of thing and may not apply to a general market move. Also keep in mind "safe" plays like bonds, utilities, tobacco, or staples will act more like a weigh station for money and not a new push into those sectors for a longer move.

On "dip" days money will want to get in to names they have missed or names they want to rotate into. I like to think of runs in the market as waves of the ocean, as the power of fund flows pours out on the beach, another wave is right behind riding in the next move:
The easiest way to mine for this is some kind of screening tool. iBC's ChessNwine shows how the PPT tools allow for easy screening of stocks gaining ground (I am a subscriber).

It pays to make sure on down days you are keeping track of green stocks. If buyers want in even on pull backs it is a clear statement of the desire and direction of money flow. Taken over days should that happen, it is one of the more powerful signals I know of rotation and can point you in a new profitable direction.

For the ultra nerdy you may try to plot buy volume with price over time in something called a Gantt Chart. Used in the professional world this type of layout tracks changes and progress over time. There is no reason why one cannot apply this chart to show sector rotation and stock run lifetime in a cycle over time:
I actually used to make these but have been a touch too busy to keep them up. I need to get back to it.

Have a good night.


GawainsGhost said...

Oh, China is definitely going to slow down, or possibly collapse. Maybe not tomorrow, but in the near future.

When you have an economy based on phony GDP numbers, you really don't have an economy. China bases its growth mainly on construction, not production. When you have entire cities, with houses and buildings, that are completely empty, you have a problem. New built ghost towns. And if your economic plan is to build more empty cities and buildings, and pretend to call that growth, you're delusional.

So, yeah, absolutely, China is going to slow down in the near future.


Some great stock tips.

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