Might Initiate Pilot Positions Soon

by Olivier on April 20, 2011

There is still not much to write about. The best summary of the current situation would still be that we could break either way. This is still a very good time to sit on one’s hands and wait for the market to give us more clues as what to expect next. For now we are more or less still trading in a choppy sideways consolidation pattern. Broad exposure to the markets will most likely not yield meaningful results. The only way I am going to play this situation is to either stay in cash or to test the waters with a few select positions.

So, what are the pros and cons of this approach?

On the positive side:

  • IPGP – IPG Photonics has broken out ahead of the pack. This one is the next true leader in the tech sector. It is slowly starting to replace APKT – Acme Packet, the stock I was using so far in order to gauge the market’s health. Other tech stocks should now follow IPGP’s example and start to move up. Focus on those trading near their all time highs as they won’t have to fight through overhead resistance.

The negatives:

  • Although the indices look fine, this is only scratching the surface. The overall technical health of the market has suffered much more than a quick glance at the indices suggest. If you go through hundreds of charts on a regular basis the technical damage is clearly visible. To make a long story short: leadership is getting thinner. This increases the overall risk as traders are much less patient and positions can reverse very quickly.

Considering both the pros and cons I might consider opening a few pilot positions soon. I am not sure yet. What I am sure of though, is that the market will need to do a lot more work in order for me to trade with conviction. When I say ‘with conviction’ I mean being aggressive and seeking full exposure. For now the name of the game remains ‘playing it safe’. This is not a market environment that warrants taking excessive risk. If I open new positions I will remain very cautious and most likely will use smaller position sizes than usual.

A quick comment on Silver: The silver mining stocks are not following the metal. Most are not printing all time highs like SLV. This could go on for a while, but technically speaking this raises a red flag. The divergence is cause for concern. Stocks like SLW – Silver Wheaton should strongly outperform due to their high leverage to the price of silver. They are not. Be cautious and closely monitor your mining stocks positions.

While I am at it, CNL.TO – Continental Gold was one of the gold miners I was most bullish on for this year. Same story. Gold is moving higher and CNL.TO is going lower on a daily basis. This is not looking good.  So far the only conclusion I can come up with is that the mining stocks think the gold / silver price is unsustainable. If they don’t start to catch up soon gold and silver most likely will enter a consolidation period soon. Let’s see what happens.

When you are doing nothing, those speculators who feel they must trade day in and day out, are laying the foundation for your next venture. You will reap benefits from their mistakes. – Jesse Livermore

My public list with all my charts can be viewed here:

Buenas noches!

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