Dear Reader,
Seven days! Good grief.
The S&P 500 has been stuck in a 2380-2392 trading range for seven days. That’s enough to cause most traders to just chew up their accounts trying to make something happen when there really isn’t anything to do. At least, there’s not anything that represents a good risk/reward setup.
Normally in the Market Minute, I dissect the daily action – which has been narrow and is now vulnerable to the jobs report numbers. Today, I wanted to share a little more of my trading philosophy.
I trade for a living. The chance to go out to a five-star sushi dinner, or stay at home with mac n’ cheese, relies largely on how I trade.
I’ve enjoyed plenty of gourmet meals. I’ve certainly eaten my fair share of cheese-covered macaroni. And I’ll gladly live with the ramifications of my trading decisions – whether right or wrong.
But when the stock market is stuck in an insanely tight trading range, it gets frustrating.
Successful traders know not to trade out of frustration.
Look, I get it… As a trader, I spend at least eight hours a day staring at a quote screen on my computer. It’s the only job I know where I can work intensely and still end the day with less money than when I started.
It’s also the only job I know where I can make a month’s worth of income in just 10 minutes.
So there’s a lot of motivation to do something, anything, to justify my existence.
But, in a trading-range market, forcing a trade is usually a bad idea. Trades that are entered for the sake of just doing something are usually trades that will end up in the “loss” column.
That’s why I didn’t make a recommendation to my Delta Report subscribers this week. Heck, there have been a handful of times just this year where I’ve not made a recommendation, or I’ve delayed one.
I’d rather subscribers be upset with me about delaying a new trade than suffer the loss of a trade that I made too early.
If we had a “drop dead” timeline – a date that we had to trade or else the world would end – then I’d give my absolute best idea. This week, my best new idea was a 50/50 proposition. So I had no real motivation to suggest subscribers risk their hard-earned money on an even-money bet.
As of the end of the day yesterday, that looked like a good idea. My best even-money idea is unchanged on the week.
But my favorite chart going into the week was on a stock my subscribers already owned.
Over the past few weeks I’ve written multiple times to subscribers about the bullish setup in “wearable tech” firm Fitbit (FIT). Here’s a look at the chart…
All of the moving average (MA) lines – the 9-day exponential moving average (EMA), the 20-day EMA, and the 50-day MA – were coiled together. Energy was building for a big move one way or the other.
The MACD (moving average convergence divergence) momentum indicator showed positive divergence for the past six months! So my bet was that FIT would break out to the upside.
That is exactly what happened. And FIT looks poised to move even higher.
If I could spot this sort of a setup every week, then the world would be filled with nothing but unicorns, rainbows, and lollipops. And my family would be enjoying five-star gourmet restaurant meals every day of the week.
But this was a rare event. We don’t often get this sort of a setup.
This is a good example of the sort of trade I like to recommend. It’s a depressed stock with decent fundamentals. The technical condition shows a long basing pattern where all of the moving averages have coiled together to create energy for the next big move. And there’s a catalyst for the next move – in this case, earnings.
Admittedly, I recommended a Fitbit trade a few months ago. We’re underwater on that original position. But we’re far less underwater on the trade than we were a few days ago. And similar positions in trades like Twitter (TWTR), Qualcomm (QCOM), Macy’s (M), and Target (TGT) have produced profits over the past few weeks.
I’d rather hang on to a trade in FIT, or even add to it as the technical condition looks bullish, than enter a new trade in an uncertain market environment.
So, despite the overwhelming urge to do something new this week, I told subscribers to stay put. Let’s get the Federal Open Market Committee (FOMC) meeting, the jobs report, and the French election out of the way before we add more exposure to the market.
Our success as traders isn’t based on what we do in any one week. It’s judged on how we do over several years.
There will be plenty of great trade setups in the future. Those opportunities are worth waiting for.
Best regards and good trading,
Jeff Clark
P.S. Thank you for all the great feedback I've received over the past couple weeks. I plan to respond to it here in future issues, so keep it coming.
Do you have questions about my trading strategies? Stories of your own big winning trades? Be sure to send them to me right here.