Trading in No Man’s Land

Welcome to no man’s land. It’s a place where bulls and bears battle for every advantage, no matter how small.

Every market hiccup is poked, prodded, and diagnosed. When you’re trying to navigate through the stock market during these periods of uncertainty, you have to deal with bull traps, bear traps, and everything in between.

You must prepare for changing conditions. Markets can move quickly and violently. Those who are unable or unwilling to act become road kill. Remember when it felt that no amount of bad news can sink stocks for more than an hour or two? That was only one month ago. This week, fear reigns supreme.

The orderly uptrend we enjoyed earlier this year is gone. There’s no use in hopefully staring at every uptick. The path of least resistance is no longer “higher”. That’s why it’s time to alter your mindset. The market has told you to switch gears. If you fight it, you’ll only lose sleep and sanity.

We are no longer in a “buy-the-dips” environment. We’ll eventually see some individual names begin to swim upstream, breaking from the downside market action. But remember that a strong majority of stocks on the market have dropped this week. That makes for very slim pickings on the long side. Every single stock that is moving lower should be approached with caution and skepticism. You’ll have a chance to buy eventually. Now’s just not the time to go after every single potential comeback play that flashes across your screen.

Stay nimble this week. If the market says run, you should run like hell. If you do decide to buy something, agree on the terms of the trade before you pull the trigger. Sell for a small loss without reservation if you have to. Live to fight another day…

Regards,

Greg Guenthner
for The Daily Reckoning

The Daily Reckoning