Market Update: Why I Closed My March Longs

Just time for a quick market update (here’s my prior update) and explanation of my May 6th tweet (the time stamp says 9:46 PM because I’m in Sweden, six hours ahead of USA ET, where it was 3:46 PM):

Just closed out all stock positions (long) I put on in the beginning of March: Biggest gain: RIMM 89%; loss INTU -8%.

Comments on the chart below:

  1. Monday (#1 on the chart) saw a gap up and new high for the rally on low volume.  That’s the first red flag. Tuesday formed a doji candlestick, which can sometimes be a warning after a long move (such as this monster rally of the March lows).
  2. Wednesday (#2 on the chart), at the end of the day, when the entire daily candlestick and volume was almost completed, is when I sold the positions I put on March 17th (see tweet).  Wednesday’s action entailed a gap up at the open, then a new high for the rally, then an intra-day reversal to close virtually unchanged from the day before.  This occurred on high volume, which means it was churning.  Also the candlestick formation was a hanging man.  All of this was enough for me to cash out.
  3. Thursday (#3 on the chart) was a nasty intra-day reversal.  The NASDAQ closed down 2.5%, as did other major indexes, some more, some less, but still suffering intra-day reversals on higher volume. It was the first major distribution day of the rally, and was likely confirmation that the 2-month rally is over (or at least due for a pause). Ideally (for longs), the market just rests for a few weeks while volume remains light, allowing stocks setup new (tight) bases.

Note: None if this is a prediction of what will happen next week or at any time after.  It’s just a record of what I was thinking and doing.  In a nutshell, the “patient” (the market) was not looking healthy, so I bailed.  Also, now that I’m back in Sweden, I need to focus on getting our apartment unpacked, cleaned, and organized after the kitchen and bathroom renovation).  Plus I need to get back cranking on BuzzPal, which I am doing!

Bonus Chart:

Here’s a weekly chart, showing the potential new bull market I discussed (and compared with the prior bull market) here.  After the March low, we had the monster rally, which printed eight consecutive up weeks.  This week we had the intra-week reversal, the first of the rally.  The reversal came on higher volume (but not the highest weekly volume of the rally).  There you have it!

Roubini’s Take (from a few weeks ago):

End of Economic Gloom? Not as Early as You Wish


The stock market’s latest ‘dead cat bounce’ may last a while longer, but three factors will, in due course, lead it to turn south again.

First, macroeconomic indicators will be worse than expected, with growth failing to recover as fast as the consensus expects.

Second, the profits and earnings of corporations and financial institutions will not rebound as fast as the consensus predicts, as weak economic growth, deflationary pressures and surging defaults on corporate bonds will limit firms’ pricing power and keep profit margins low.

Third, financial shocks will be worse than expected.

[Read the entire article here.]

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