The title of this post is a variation of the title of a short story by Joyce Carol Oates, “Where Are You Going, Where Have You Been? featuring one of the most evil characters in modern American literature–Arnold Friend. Ironically, many literary critics have argued that Friend was not even a real character in the story, but rather one imagined by the story’s protagonist, a teenage girl who may or may not have been murdered by him.
In the stock market, traders also battle villains every day. Often times, however, that antagonist is looking back at them in the mirror, or is even just a figment of the imagination. Your money is made in the markets by punishing other traders for making mistakes. Thus, it follows that you had better contain your mistakes as well. Whoever wins the battle of mistakes gets the money.
In a market such as the one in which we currently reside, many traders have a tendency to fight the change in character that is occurring. Since mid April, we have seen an increase in price swings, volatility, and selling volume on down days. The bounces have been fast, exuberant, but ultimately short lived. Yesterday, we finally broke down below that volatile range on heavy volume and powerful breadth. Today, we had more follow through to the down side, despite several attempts at a rally by the bulls. The fact that each and every single bounce was weak and short lived should be a blinking red light to you that this market wants to go lower. To put it in simple terms, demand of stock is being overwhelmed by supply. Sure, we could see a bounce tomorrow, but consider the concept of overheard resistance. The $SPY Hourly chart below should illustrate this point.
Gold, however, is an asset that is looking better than equities these days, via the ETF for the underlying metal, $GLD. Given the odd mix of both risk and safety that we have seen attributed to $GLD over the past few years, I would not average into a position until we see a confirmed break out above the neutral range, seen in the chart below.
Going back to my opening point, no one can accurately predict every single move in the market. However, that fact does not mean that you should chalk the whole game up as a random walk and turn off your computers. Rather, you should be listening to the market and all of the messages it is sending you. I have no idea whether we are starting a new bear market, or if we are simply in mild correction. But, I’ll be damned if I am going to get caught up in the tide. As promised, I sold out my remaining short positions, $SKF and $QID, today. I am now in 80% cash, waiting patiently for better setups, content to not be my own antagonist.