Back To High Cash Levels

by OLIVIER on SEPTEMBER 22, 2011

Some quick thoughts on today’s market action. The market is chopping undisciplined traders to pieces. The market had the opportunity to build some kind of trading range but the bigger chart pattern pressure kicked in today. We are most likely in a bear market. For regular readers this shouldn’t come as a surprise. From a purely technical perspective odds now favour further price moves to the downside. In plain English, expect more follow through. When I published the Bear Market Trading Rules I intended to stay mainly in cash. I ended up not following my own advice. I put on 3 positions and so far got stopped out twice. My rationale going into each trade was that the stock was either to display a high non-correlation with the S&P 500 or that it was to display character traits of a potential new leader. Only WPRT – Westport Innovations is left. As stated on my WPRT public list chart annotations I am thinking about raising my stop loss in order not to let a winning trade turn into a losing trade.

I was willing to test the waters. The market is clearly telling me that trading from the long side with a position trader mindset is not working. No big deal. I managed my risk and didn’t let losses get out of control. My overall portfolio percentage loss is negligible. I am now back to having low exposure to the markets and am holding lots of cash. My job is literally to “ask” the market what to do by means of putting on a few pilot positions. Then I “listen very closely” to what the market tells me. I then act accordingly and simply do what I am told.

When in doubt stay out.

This is not a good time to be a hero. Only a few select long trades work. For now it is best to stay mostly in cash and be patient. Preserving capital is key. Also keep in mind that great trading has nothing to do with fighting. Great trading should be effortless. Oh, and lest I forget… Kill your greed.

Live to trade another day.

My public list with all my charts can be viewed here:
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2791469