Looking back at the past week, we saw the markets go from being overbought to extremely overbought and there is nothing to say that it can’t continue doing the same this week. Though I will admit, I think it is much more likely we see a pullback of some kind. Coming into Tuesday’s rally the market had sold off two straight days, and we actually had a short position (Long SDS) that was showing some potential. That is until the market move that was made on Tuesday. We ended up getting out of the position early on once it broke out of the trading range. At that point, I was looking to get long on the market, and to do so on a pullback that took price back below 30 points in total gains on the day for SPX. That never happened, not even close. Nothing anywhere close to a pullback, which left us on the sidelines.
But that is not anything to get down about. Yes, it is always desirable to be in on the big moves higher. Chasing them higher into oblivion is usually a losing strategy though. You’ll get those crazy rallies here and there that will make you question that approach but on the whole, markets don’t typically do what you saw happen on Tuesday.
Nonetheless, Wednesday – Friday still allowed for us to profit from the market and that is really what our aim is – not match each day’s rally or sell-off no matter how big or small it is, but to find a way to consistently profit regardless and compile gains in the process.
We made fewer trades last week than what we have grown used to of late but we were still able to be profitable in the process and that is the key here. We were not in a position with the over extended market to be trying to pile on the positions at this juncture. As a result we are able to remain flexible heading into the week ahead that has a strong chance of possibly pulling back and giving us a chance to be profitable rather than reeling in unnecessary losses.
