Author: Michael Arold
Covestor model: Technical Swing
I’ve maintained a bearish stance during the first half of June and played the market predominantly from the short side. Recently I’ve been taking profits and increased my cash position to over 80%.
Yesterday (6/20) marked a significant change in my short-term trading strategy. I closed an index short position (TZA) and went long various strong momentum names in my Covestor model portfolio. I selected stocks of companies which held up well during the recent market decline. I acknowledge that this is still a weak market and I don’t expect to hold these stocks for a long time.
Various factors suggest that we could see a bounce for a couple of days:
- The technical picture of the Russell 2000 looks short-term positive if important resistance levels can be broken. After declining for the first two weeks, the Russell seems to be bouncing from its 200 day moving average.
- Some indicators (not all!) suggest a very high level of negativity in the market, which is usually the basis for an oversold bounce, based on contrarian thinking. The equity put/call ratio, for example, came in well above 1 during last week, according to Stockcharts.com. Similar levels have been associated with a short-term bottom in recent years.
- The markets ignored some positive surprises in economic indicators last week. For example, the Index of US Leading Indicators rose more than forecast in May. Participants seem to be focusing solely on Greece. A positive outcome of the confidence vote could spark a relief rally.
Sources:
Equity Put/Call Ratio: http://stockcharts.com/h-sc/ui?s=%24CPCE
Leading Indicators News Release: https://www.businessweek.com/news/2011-06-17/u-s-economy-leading-indicators-rise-in-sign-of-growth-rebound.html
