We had no additions or deletions to the portfolio today.
On July 9th, the 3rd market indicator that we use to gauge the indexes went to a sell. The sell issue was not stock specific but rather market related. We rarely make an outright sell call for all positions...thinking back it's maybe been done a handful of times. The positions which were open would still be open positions except for SCLN. I want to take a few minutes and explain the rationale behind making market decisions versus individual stock decisions. First, trading is as much an art as a science which lends itself to a large amount of discretion at times. Below are three charts which help explain in greater detail our reasoning.
The above chart is the 3x inverse of the SP-500 with a trailing ATR based on close. The reason we use this chart versus the regular SP-500 is because signal changes occur less often. SPXU has extreme slippage relative to the market when the SP-500 is in a strong uptrend. The longer the uptrend the more difficult it is for the SPXU to generate a buy signal. You'll notice from the above chart that the SPXU has now been on a buy for 9 trading days. This along with the continual decline in stocks above their 40 day moving average, places the general market on a short-term sell.
The above chart is the SP-500 with a momentum indicator which we developed to help indicate when trading has a higher probability of success. You'll notice that around the end of June the indicator went below 100, indicating that the probability for successful trades is diminishing. Now like any indicator, it's not an absolute. Many times, we will find stocks during these periods and have success, but as a whole most trades tend not to work.
The final chart above is the SP-500 with an indicator built for a very similar function as the middle chart. You could consider it a risk on / risk off monitor. On July 9th, the chart went to risk off (yellow line above blue line). Here again, this is not an absolute, but a warning to be vigilant and manage your positions accordingly. Similar situations have occurred in past years (2007, 2010, 2011, and 2012).
Does this mean that we are headed for a major market correction or crash? The answer is that I don't know, but the above indicators are telling me to pay a little more attention then normal. We might have very well done all the correction necessary. However, with the information presented, I made the decision to lock down some profits during this period. There's a chance that this could be the wrong decision, but we are sitting in a solid position and up nearly 20% for the first half of the year. In the next few weeks, the overall picture could have greater clarity and trading could resume. Time will tell.
Now as for the positions that are still open in the portfolio, they can still be held because none of them have actually broken their trailing stops. For this reason I'm going to continue monitoring them for future exits. They all still have strong constructive chart patterns which might prove quite profitable over the next few months. Below are the charts with their trailing stops plotted below.
The watchlist is down to a handful of names, but we did add one new name, BEAT. VLRS, MBLY, and MDXG continue to be the best candidates on the list. Below are the charts for VLRS and BEAT.