WATCH: The 4 Stage Stock Market Cycle


Technical Tuesday - Short-Term Traders, Stay in Cash

By Chris Rowe September 4, 2012 Facebook Logo Twitter Logo Email Logo LinkedIn Logo


That's all.  Just yawn. 

See ya next Tuesday... 

Okay, I'll write it but I won't force it.  And that's how you should think about the financial markets right now.  This is the quiet before a storm.  Who knows what kind of storm.

The stock market has strength, intermediate-term, but short-term looks kinda weak... I guess?

Gold and silver seem to have bottomed out and broken out, but may pull back a bit before continuing their run... I think?

Agricultural commodities might be forming a flag... kinda?

I don't see anything great going on right now.  And, having worked with thousands of investors, I know this is probably the most dangerous type of market for most individual investors. 

Wait until the storm starts and then play in that direction.

Don't force a trade here, short-term traders.  Don't pull that itchy trigger finger. 

Now is a great time to sit like a cheetah in the brush as the herd of gazelle move closer.  It doesn't make sense to buy before the breakout or breakdown begins, unless you have seen overwhelming evidence of a likely outcome. 

This market situation warrants an article filled with generalizations:

  • The stock market is overbought and is up on light volume.  That's a sign of a weak bull market, which sets the stage for a short-term top.  But on the other hand, it's standing pretty darn strong up here.  That's a bullish sign.  
  • The metal commodities look like they want to get going to the upside.  But they're being shy for the moment. 
  • Agricultural commodities recently made a huge advance.  They've stalled, but it seems like a bit of a continuation pattern may be forming.  It usually makes sense to get bullish on those patterns as the continued breakout makes itself more obvious, but this pattern in particular -- the "flag" -- should be watched very closely.  A breakout to the upside would likely happen very quickly, so it should be played very early in the breakout. 
  • Energy commodities are a mixed bag.  That's all I have to say about that.

So here's the general takeaway...

The stock market doesn't know how much of a break it wants to take from its 11-month bullish run.  We are seeing signs of fear, such as the defensive stocks showing strength relative to all other sectors, and options volatility spiking a bit.  It's too early to say what's going to happen next. 

Intermediate-term and long-term investors, you can just sit tight in bullish positions as you should have been for several months now.  If either the intermediate-term or long-term trend change to bearish, I'll let you know (keep checking back on Tuesdays).

But short-term traders, keep your cash on hand, stop staring at your computer screens, and wait for the high probability outcome to show itself.  This way, when it finally does, you're working on making a profit instead of making up for a recent loss.