Navigating Market Indecision
Recently, I’ve received a few questions about the time I’ve spent on the sidelines in the past weeks, so I want to take a moment to make sure everyone is in the loop on my thinking.
First off, let me clarify that I haven’t adjusted anything in my long term portfolio so I am not making any fundamental changes to the way I view the market as of now.
It would require several more weeks of downside momentum and the break of key levels for me to change anything related to my long term buy-and-hold portfolio.
That said, I definitely have been quieter in my active trading…
Now, please understand, I hate being on the sidelines, as I am sure most of you do. I love to be in the markets and taking advantage of opportunities.
But I have learned the hard way over the years that sometimes the best action I can take is none.
What we’ve seen lately, in my view, is immense indecision.
If you’ve followed me on Telegram you’ve seen my update with a lot of “getting some strength here, we’ll probably sell it off” or vice versa.
And that’s essentially what we have today as well… Another tumultuous day:
The S&P is down, the Dow is down, the Nasdaq is up…But it’s not really about what is up and what is down. It’s more about how they’re moving.
Lots of volatility, but very little conviction.
In these kinds of markets, I think it’s really tricky to do anything directional. I typically focus more on income and pair trading when there is this level of indecision.
But I am sure the question you have is “OK, Nate, well when do you get back IN to directional trading?”
For me, I want to see clear direction with some maintained conviction that gives me a higher level of confidence.
What that means in the larger view is that the broad market establishes itself above or below some key areas.
If you’re watching the SPY, I would like to see us get above all the “noisy” areas between current price and about $560.
I think this whole area is pretty shaky ground just based on how we’ve seen the markets act around it in the last few months.
To the downside, we don’t have a clear picture either.
The immediate area to watch is the September low. If it breaks that, we should see some follow through, but it’s dicey again because of all the chaotic movement in August where there are key levels, gap fills and everything in between that we have to fight through to get into some “wide open spaces”…
If we filled the $535 gap area and then broke lower, I would start taking some short plays, but I wouldn’t be completely bearish until we flipped all the way below $510… And that’s a long way to go, folks.
But forget the big macro levels for a second…
Because we don’t need those to play out to get some more directional sense. The more nuanced thing to look at is exactly what I started by sharing:
Do we get some consistency in the flow of price action?
Do we have days that are bullish with positive news from start to finish?
Do we have days where negative news means negative news from start to finish?
Or do we continue getting the action suggesting that everything is mixed?
The interest rates will be a great test for that coming up in just a few weeks.
I think it’s important to feel like the market itself is reliable when it comes to this kind of price action before I will get significantly more active.
In the meantime, I am scoping out some longer term plays that won’t matter as much during this short term uncertainty.
And, like I mentioned, income and pairs trading is at an ideal right now.
For those of you waiting for some new signals on a couple of our strategies… just try to be patient — this is the exact market action we’re doing well to AVOID.
I want to make sure we’re getting confirmations before jumping into a market this dicey.
Remember, that’s how we keep our win rate up and positive portfolios even through these kinds of chaotic conditions.
— Nate Tucci
P.S. Next week’s Fed announcement could cause some volatility and here’s how I’m planning to play it if it does.
