April was the most grueling month I’ve experienced since starting pebblewriter.com. The month started only 6 points below the all-time high of 1576 and ended at the trend line connecting that high with the year 2000 high of 1552. Nearly every session begged the question: will SPX make a new all-time high?
Seventeen of the 22 sessions in entire month saw trading within 10 points of at least one of the lines. What’s more, the average daily range was 16.5 points. About 60% of the sessions involved a change in direction. If it had been a basketball game, they’d have carried both teams off the court after reaching 180-179 in quadruple overtime.
It was a blur of whipsaw days, sleepless nights and an almost embarrassing number of trades — about three per day. We had many sizable gains as well as our single biggest loss since inception: 1.59%. By the time all the dust settled, we were up 14.45% for the month versus 2.03% for the S&P 500 — our 3rd best month yet.
All in all, it was a very instructional month — reinforcing some things I’ve been doing and arguing against others. Two issues I’ve been studying are interim trades and holding positions overnight.
The overnight ramp jobs and reversals were deadly. It was only marginally beneficial to maintain a position overnight or over a weekend. And the whipsawing got so bad that I was a little paranoid by the end of the month. Performance might have benefited from looser stops and going to cash overnight and over weekends.
There were also days I should have stayed with the trend and ignored the bounces or “interim trades.” On the 18th, for example, I let a short trade run while playing short-term bounces to offset the losses. By the time I covered the short on the 23rd, my three winning trades of +2.45% offset the 4 losing trades totaling -1.85%. But, I could have earned 2.5% by simply switching sides when the short signal faltered.
As we discussed last month, the trickiest part of Harmonic Patterns is the .886 – 1.000 range (once a Bat Pattern completes, will there be a new high?) Now that the question of a new high is settled, we should see more directional moves and less chop in the market — reducing day trading and permitting more swing trades.
The road ahead continues to look bumpy. Sentiment is lousy as many market participants seem to feel stocks are overpriced, but are leering of abandoning BTFD. Corporate earnings look fine on an EPS basis, but have mostly missed on revenues and outlook. The economic picture continues to be worrisome, with weakness across the board.
All eyes will continue to be on the Fed, which seems to hold the market’s future in its hands.