The major indexes inched up again to new highs, giving financial media something to talk about. Not being reported on, however, are ever more stocks peaking and heading downward on what may be institutional profit-taking, as earnings reports and economic news last week were scarce.
Our stock lists certainly do not correlate to the major indexes. Many positions already short and more added this week as prices of many of our long positions sagged, erasing many recent new weekly highs. New weekly lows growing in number. As always, stock-specific trend direction matters.
Our review of key behaviors of successful traders concludes this week with a mention of analytics:
Trust the analytics, but accept their limitations – our trading strategy derives success from identifying current trading behavior of the “smart money” institutional traders so we can copy them and earn the productive gains they do. Without effective analytics, our trading would be nothing but a guessing game. The better our analytics measure institutional behavior, the more we align our positions with theirs and skew the odds of success in our favor. And at this point, our analytics are quite good at doing this.
We must remember, however, that analytics are not predictive of forward behavior and institutions have access to much more breaking information than we as small retail investors will ever be aware of, and five trading days each week in which to change their mind about a stock on that new-found information – sometimes abruptly, sometimes dramatically.
When faced with a reversal trade, especially for a loss, accept it for what it is – less the result of faulty analytics and more the result of a broad-based institutional change of mind, for which they are incurring the very same loss.
So, do not let unprofitable trades – and there will be many – cause you to lose faith in the process, blame the analytics, and fail to make trades or quit altogether, but instead recognize that information unavailable to us has led the smartest institutional managers in the business to change their mind, so we need to do the same without hesitation or doubt. It’s a matter of information (that we don’t have), not analytics. Just as the “smart money” institutions keep plugging away and getting it right to earn significant profits over the long run, we must maintain our faith in the analytics and remain actively engaged and disciplined. It is a big mistake to doubt the analytics, ignore them and hold positions contrary to the “smart money” – it only takes making that mistake a few times to decimate one’s investment account.
Highlights: Only 3 new weekly highs in long positions. 9 stocks with double-digit long gains:
FIVN +10% ABX +22% CYBE +30% NEFF +50% TROX +88%
IVTY +20% HUN +33%
NGL +20% KMT +30%
Locking in long gains of +14% in ERF (14 weeks) and +23% in FRPT (15 weeks).
3 new weekly lows among short positions. 2 stocks with double-digit short gains:
URBN +19% ATW +20%