Rev's Forum: Keep Your Motor Idling, but Wait to Gun That Engine

 | Apr 11, 2017 | 7:29 AM EDT
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"After spending many years in Wall Street and after making and losing millions of dollars, I want to tell you this: it never was my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight!"

--Jesse Livermore 

The common perception of active traders is that they are in constant motion, that they are buying and selling and doing something all the time. That may be what some high-frequency programs do, but the best individual traders know there are times when they will be doing very little. They may just need to sit and let their trades work like they are supposed to or, as in the current market, they need to stay patient and wait for new trades to develop.

Whether you are heavily invested or sitting mostly in cash, the key to success will be patience. Good trades take times, and if you too anxious and move at the wrong time it can be quite costly. Successful traders are able to cultivate the ability to stay patient for long periods of time but then to move quickly and decisively when the right conditions develop. Once they make their moves they stay patient again and manage their positions with strict discipline.

Patience is always challenging, but particularly so in a market like the one we have now that is moving so little. Yesterday the market was largely unchanged once again. The S&P 500 was up 0.07%, the Nasdaq was up 0.05% and the Russell 2000 ETF led with a gain of 0.18%. Breadth was positive, but volume was light.

A few stocks performed well yesterday, but it was a narrow market. Some Chinese names stood out, with Alibaba (BABA) , (JD) and Momo (MOMO) breaking to new highs. There were a few other movers as well, but it was extremely slow action.

When the market is this slow, the natural inclination of many traders is to start making predictions about the next major move. The bears have been particularly loud lately as they dissect the news flow and come up with very good arguments about how the market is doomed.

It isn't just the bears who are making big calls. We had some wildly bullish predictions about the market yesterday. Morgan Stanley is predicting that a 30% surge like what happened back in 1999 lies ahead. Another analyst predicted that the S&P 500 could double from here and Tesla (TSLA) was upgraded by someone who deemed valuation an irrelevancy.

There are extreme predictions on both sides, so if you have a market bias you can find some good arguments to support it. Personally, I don't trust any of the predictions. I don't know what this market is going to do, so it is not going to help me to try embrace a wildly bullish or bearish view.

My approach here is to apply the wisdom of Jesse Livermore and stay patient. I want the market to tell me what to do. I want to sit back and monitor the conditions and then move quickly and decisively when I feel I have an edge. Right now, I see no edge. I see many traders who want to call tops or predict giant upside moves, but they have nothing solid to rely upon other than the hope that the market will apply their particular brand of logic.

Although the market isn't offering any edge as far as overall direction, there are trades to be had. I have been writing about a few, such as Star Bulk Carriers (SBLK) , Baozun (BZUN) and Aurinia Pharmaceuticals (AUPH) .

Pursue the individual stock picking if you are so inclined, but keep in mind this is one of those times when traders need to cultivate patience while they look for an edge. The indices are barely moving, the market is ignoring significant news and the pundits are seeking attention with big predictions.

Great traders will bide their time in this environment and then move big and fast when the conditions are right.

Early indications are nearly flat once again. Federal Reserve Chairwoman Janet Yellen made some comments last night that are being ignored, but oil is seeing some interest.

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