Inflated Market, Deflating Balloon

THE WEEK

We saw several sectors show some major weakening – Energy and Utilities.  I like to watch the sector rotations week-to-week as it gives clues about the entire economy status. 

The stock market has been on a steady up turn since late October.  It did a lot of sideways dancing during the Holidays finally breaking through a 52-week high last week.  I have started seeing possible signs of an upcoming down turn.  Those of you who follow me know I watch the number of 52-week lows for clues.  In the last week those clues have started happening with more frequency.

LOOKING AHEAD

I am going out on a limb and say there is going to be a downturn soon.  Do I think it will be severe and last a long time?  No.  I see it as a balloon that has been blown up and is stretched out to the maximum.  At some time, the balloon skin can’t stretch any tighter and has to relax and the Market will go down for a while. 

This week there is a major economic announcement on Friday – the Core PCE.  This report doesn’t get a lot of public attention but it is one the Feds watch closely.  I will be going over this on Thursday’s webinar.

HOW AM I DOING?

It was another good week with moderate advances.  The hardest thing is finding good Tickers to trade.  We are just entering the heavy earnings season so that problem will soon be solved.  Depending on those earnings results, there will be a whole slew of new positions to go for.

What has made the last couple of weeks so much fun for me is Investing Buddies is trading a new trade set up developed by one of my Buddies.  We are doing it in Paper Money as we test and revise our guidelines.  One of the things I have always done is to massage a trade gone bad back to a profitable one.  I tried the same techniques and it did not work at all because of drastic changes of Implied Volatility for the ticker after its earnings announcement.  That’s why Paper Money is an important first step in learning to trade and in testing a new trade.

This Thursday’s

 DEEP DIVE

All about the Impact of Earnings Announcements

Most traders understand how volatile this time is in the Market and for Tickers

What most traders don’t grasp is how the announcements can set you up

for a very successful quarter of trading.