Market Distribution Increases, Stock Picks Fade

Out of all the picks I have made here on the site in the last few months, almost all have been stopped out or sold in the last few weeks. The only ones left standing at the moment are NFLX ($97 stop), VIT ($22.50 stop), IGT ($20 stop), and GG ($40.50 stop). To put this into perspective, at one point there were close to 20 active stock picks.

What never ceases to amaze me with being a momentum trader is how playing by your own disciplined rules will naturally get you out (or into) the market. There have now been four distinct heavy distribution days for the major indices (see S&P 500 chart below) which have all started with the Goldman Sachs drama. Even though the market rebounded each time, the volatility was still enough to knock me out of my positions.

Investing for a hobby is fun during bull markets, and very educational during bear markets. I am not going out on a limb here and suggesting the rally is over and all hell is about to break lose. What I am suggesting though is that the market is definitely no longer in a definitive uptrend, and most of the great setups have now faded. If you, like me, have naturally fell back into a strong cash position because there are simply no setups to buy off of, then I say sit tight and relax. You’ll know when to hop back into the game.

I am not the type of investor who likes to actively short stocks. For me any downtrend is a time to recap past patterns, research more industry groups, and overall prepare myself for the next upswing. But, for those that do want to play the downside there are many short ETFs that would be a great fit. To view a full list, check out my post 40 Inverse ETFs For Bearish Investors.

Stock charts and analysis below:

View all S&P 500 charts.

SPX 050410

View all VIX charts.

VIX 050410

View all AOL charts.

AOL 050410

View all NFLX charts.

NFLX 050410

View all CLF charts.

CLF 050410

View all DPZ charts.

DPZ 050410

View all AKAM charts.

AKAM 050410

View all ILMN charts.

ILMN 050410

Stay frosty out there 8-)

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  1. says

    Stop loss is not all it’s cracked up to be. There is a much better alternative – but it’s only suitable under certain conditions. The conditions are that the stop is more than just a few points under current price.

    The idea is to sell the stock and replace it with a high delta call option. Because the loss is limited to the option premium, the stop is already in place. But, unlike a true stop-loss, if the market tanks, you still own the calls ad can participate in a market rebound. No whipsaw. The cost to play is the time premium in the call option.

  2. says

    That would work. What I do like about stops though is that I don’t sell unless the order is triggered. This allows me to maximize my return on the upside. Also as a momentum trader is the stop is triggered that is fine anyway as I am not looking for a long term hold (unless the stock makes a run).