The Sky Is Not My Limit. I Am

July 6, 2015

Mish's Daily

By Mish Schneider

T.F. Hodge

Looking objectively at our radar screen and without factoring in the news, we began this week with a question that all discretionary and systems traders ask:

What adjustments to our portfolio and trading style do we or should we make right now?

I’m here to tell you, been there, done that many times in the past.

With the overall indices both breaking down from their highs and deteriorating in their phases, they all are nonetheless holding well above their 2015 lows. That keeps the notion of the giant trading range (Sheep Theory) intact.

That also begs the analysis of examining the times when we broke with our plan and how often that turned out well versus when we broke with our plan only to find out that sticking to the original reasons for the various positions were right on and from the onset, calculated with the perfect risk parameters.

And isn’t that what trading is really all about anyway?

For swing traders, it’s always about a systematic approach that has time tested well against any and all market conditions and with the understanding that no system works perfectly under every market condition.

I rarely subscribe to the flight to cash type of trading, especially since cash yields are a negative with our historically low interest rates. I’d rather diversify our portfolio by having positions spread out among several asset classes and then for further safety precautions, reduce position sizes.

So where does that leave us currently?

Over the course of the last several years, well outperforming the market. In the current year, considering all of our trading models in total (5 fully automated trading models and one discretionary soon to be fully automated model), performing in line with the S&P 500’s performance.

What me worry?

Rarely. I went into trading over 30 years ago with 3 basic notions in mind. One: We have no control over anything except our own attitude. Two: Everything in life and the market cycles. That means although we may have no control, we do have the ability to look for the telltale signs of where things are within the cycle and then adjust our attitudes (and our trading) accordingly. Three: Cycles measure the regularly repeated and temporary nature of existence.

S&P 500 (SPY) Holding the 200 DMA which of course it has to continue to do. Over 208 most likely good.

Russell 2000 (IWM) If this can get back over 124.75 that’s a really good sign. Under 123 can see 120

Dow (DIA) Closed just under the 200 DMA and enough to make it interesting should it open higher

Nasdaq (QQQ) 108.20 pivotal with and support all the way down to 106.50

XLF (Financials) Will be interesting to see if this can hold the lower end of the 2015 trading range

KRE (Regional Banks) Over 44.00 much better and the 50 DMA is 43.00

SMH (Semiconductors) Broke the 200 DMA but well above the March lows-Now, 54.50 a swing point

IYT (Transportation) Made new lows again and closed right on monthly support. A game changer would be a move and hold over 146.40

IBB (Biotechnology) 361 support and over 375 hard to argue with

XRT (Retail) 96.00 underlying support and over 100 this will have new life

IYR (Real Estate) Closed over 72.85 to begin the week, therefore positive

XHB (US HomeBuilders) 36.09 the moving average support to hold