Focus on the long-side

The market shrugged off the mild pullback from Friday and scratched out gains today with some nice breadth reading. Volume was light, which was largely due to the holiday. The index action remains strongly positive. Each pullback over the last two months has been shallow and brief.

What’s been frustrating is that while the indices have marched persistently higher, many potential growth stocks have not followed suit. If you want to look on the bright side of this, that means there should be plenty of stocks still completing basing formations. My weekend research showed me exactly this. Even with the index run-ups in the last couple of months, there aren’t a whole lot of stocks that are overly extended. This means that growth investors may be able to play some catch-up here if the market stays in shape. Unfortunately, the higher we go, the more likely we are to get a pullback.

Therefore, I believe the long-side is the place to focus. Short-side opportunities are scarce and trying to short when the market is churning or even going down can be difficult. Shorting when the market is moving strongly higher is extremely dangerous. Keep in mind the market is extended, and a pullback is highly likely. Don’t chase. Only take the best opportunities, and consider taking some partial profits if things go your way. This is still not a market to get overly aggressive with, but it may offer some opportunity for profit. I’d consider trading a little more aggressively once we get the next pullback.

Best of luck with your trading,
Rob

Rob@HannaCapital.com

For those who may be looking to expand their knowledge beyond just market timing, my Hanna ETF Money Flow System utilizes the VIX in generating trading signals for spread trades.

Rob Hanna is the principal of a money management firm located in Massachusetts. He has spent the last several years developing and refining methods for trading in stocks across multiple time frames. He selects stocks using both fundamental and technical criteria, and then trades them using technical analysis techniques.