We presently have a market (and more than a few stocks) forming the ever dreaded “Head and Shoulders” topping pattern. Everyone sees this, of course, though I would warn against concluding that it is then too obvious, as I heard much the same thing back in 2008. Not that this market is anything like that one. Still, the point remains: Ignore what others are doing and just focus on the market itself. This is an unsophisticated-sounding tenet but one that, if followed, affords one a focus that the opinions of others tends to corrode.
Now when it comes to the Dow, 25 of the last 40 sessions have been triple digit moves. 10 have been triple digit gains; 15 triple digit losses. 10 sessions have seen the Dow up or down over 200 points. Now that’s some volatility. And a great way to churn one’s account if you’re not careful.
To my mind, however, the two most probable paths for the market are 1) Chop and slop (snapback rallies and selloffs that occur without rhyme or reason, frustrating bull and bear alike), or 2) Lower prices. And if we’re in fact heading lower, then I imagine that the highs of 6/15-18 would be a ceiling. Just keep in mind that stocks often form multiple shoulders before finally breaking down in earnest. So being nimble, flexible and persistent is a must.
We could always continue to rally, of course, so that has to be considered as well. It could even be a powerful move; if so, one should know just what they want to own. Focusing on stocks like AKAM and FFIV, given their fundamentals and the fact that the entire group is full of strong stocks, would certainly be the way to go. Otherwise, stocks like AMZN, PCLN, AFL, BUCY, GS, V and GMCR should be your short targets, if not the many inverse ETFs out there.
Just take nothing for granted and, as always, be ready for anything….
Disclosure: Long: SPXU, TZA, SQQQ; Short: V