When we last spoke, we discussed the extended state of the market, along with how to use Phoenix to give you a heads up to time the pullback.
Looking for a reversion to the mean — which is really all I’m looking for when I state ‘pullback’ can be tricky in a very strong, bullish market.
This is exactly what we saw this week as the market refused to pullback. In fact, it made a nice rush higher, to close out at even higher prices — no pullback in sight! It wouldn’t have been much fun to be short through that move!
This is why trading with triggers, technical parameters, and an overall market outlook is so important.
Let’s take a deeper look…
It doesn’t really do you any good to just continue to hedge and hedge, stepping in front of the proverbial train and continuing to take heat.
That’s why I prefer to wait for a signal that the market’s pulling back — first. Of course, there are consequences to waiting. And, each trader must determine which option you prefer.
For me, waiting means that sometimes I don’t have the most graceful entry. It means that sometimes the market will gap down overnight and I’ll miss some of the profits I could’ve potentially made on a hedge. Or, even worse, I don’t take profits at the best spot on my longs.
But, for me, it’s worth waiting for a trigger when it means I don’t have to fight price action.
Using Phoenix to identify when canaries in the coal mine appear is my favorite first step towards timing a reversion to the mean. It’s also my favorite method to stay long when I’m waiting for a rollover (because I’ll know when the situation shifts).
So, what am I doing here?
For one, I’m starting to feel like this market is similar to the situation in January 2018, and I want to do a couple comparisons. What goes up — especially like this — typically will come down, but until it does, I’m sticking with relative strength until I see the canaries.
As such, my analysis backs my belief that my energy is best spent there. It’s risky staying long at such extensions, but I’ve narrowed down my positions into a few select areas — the ones with the most strength.
My most notable favorites right now?
XLY, including NKE, HD, TGT, ROST, and LOW.
We have a strong economy — led by a strong consumer, and they’re spending money. Companies like these are defying the retail apocalypse, one customer experience at a time.
