Don’t Let Bulls, Bears and Bubbles Distract You From Smart Trading
I’m not bearish, bullish, or fighting bubbles. I’m simply adjusting my positioning.
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The market is weak on Tuesday morning with only about 27% of stocks advancing. The number of new highs has dropped to around 70 while the number of new lows is at 150 so far.
The VanEck Semiconductor ETF (SMH) is finally taking a rest and small-caps are down more than 1%. There is no panic selling, but sentiment has cooled and the bubble chasers are starting to question the wisdom of pursuing endless upside.
Building Cash to Over 50%
As I’ve mentioned, I’ve been increasing my cash levels steadily and now have the accounts I manage for clients at Hammerhead Financial Strategies over 50% in most cases.
I’m not bearish. I am still optimistic about the market and the opportunities that are developing, but I believe that momentum is cooling and that there will soon be some better entry points.
‘Sell in May’ and the End of Earnings Season
Typically this time of year we hear talk about seasonality. There is an old market saying, “Sell in May and Go Away.” Sometimes it works and sometimes it doesn’t. Seasonality is a tendency and not a certainty. Whether it works depends on the circumstances.
One of the main reasons that May is often a turning point is that it is the end of earnings season. The catalysts for further upside have vanished, and there are also fewer inflows from retirement and 401(k) plans.
I suspect that the lack of positive catalysts for a few weeks will allow many stocks to drift lower, and I want to be in position to slowly accumulate the best ones. We may see seasonality be a self-fulfilling prophecy this year.
Iran Is Not Going to Resolve Quickly
As I’ve discussed, I’ve been looking for a sell-the-news reaction to progress in Iran as a possible turning point for the market. However, Iran has been much more difficult for President Trump than anticipated, and it is looking increasingly likely that further military action may be needed. That undermines the whole idea of a euphoric surge on “the war has ended” headlines for a while, and if we see more stalling in the market, that will produce more selling.
There are many bears out there that will concoct a long list of negatives and tell you why the market is doomed. I’m not buying that, but that doesn’t mean that I don’t respect the price action.
My Strategy
I’m not bearish, bullish, or fighting bubbles. I’m simply adjusting my positioning so that I can protect gains and be in position to be aggressive when I feel conditions for buying have improved.
It isn’t necessary to make predictions or have a fancy market thesis. You just need to watch the price action and react to it. I’m seeing price action I don’t like, so I’m raising cash. It is that simple.
I did add to one position today, SSR Mining (SSRM), a gold miner.
At the time of publication, Rev Shark was long SSRM.
