Focus on Strength

3 back to back green days for the market averages with $QQQ breaking above its 50dma intraday and reaching levels not seen since August 2nd. None of the macro issues have been resolved, but they never will be. For better or for worse, the market has a short-term memory and is capable of rallying in any environment.

The mainstream media continues to mass produce apocalyptic news, because this is what attracts the most attention and sells the most. When the current challenges are solved, it will come up with something else to worry about. It always does. People do what they are incentivized to do, and TVs and newspapers are incentivized to produce noise. The good news is that you can fully ignore it when it comes to making your trading and investing decisions.

Focus on strength, take your entry signals and diligently cut your losses. Loss cutting is not practiced only to protect capital against major drawdowns, but also to consider opportunity cost – there are always other stocks that are breaking out or down. If one idea does not work, just move to the next.

Take a glance at $STMP, which has become the latest posterchild of why relative strength matters. When a stock is up 3% and advancing while the market averages are down 2%, take a note. This stock is likely to outperform when the market turns north. BTW, $STMP is extended at this point and this is not the place to chase it.

Let’s take a look at the breadth:


Other Stocks that are less than 5% from their all-time high: $VRUS $MAKO $KEYN $STAA $AMZN $MA $ALXN $JAZZ $ULTA $HANS $EVEP $MG $TNH …

120 liquid stocks gained 5% or more today. 35 of them reached new 20day high. Some of them: $SQNS $SIMO $NVDA $BSFT $TLEO $CRUS

330 liquid stocks reached 20-day high at some point today: $ARMH $CMI $URI $BMC…

Look, things can change in a blink of an eye. Chasing stocks that are up 3 days in a row is not wise. Taking gains relatively quickly and keeping your overnight exposure light still makes a lot of sense.