This Crazy Market..

7:30 am EST I have seen the following quote attributed to several people. The person who said it doesn't matter nearly as much as what you can learn from it. The quote is as follows:

"The market can stay irrational longer than you can stay solvent."

It is certainly true in this market. Oil continues to go higher for no reason other than it is going higher. We are awash in oil, yet the price continues higher. Stocks ended the week higher in spite of a potential pandemic, a GDP number that was significantly worse than expected, and the bankruptcy of one of the largest automakers in the US. Any one of these events 18 months ago would have crippled the market. Yet we just barreled higher.

So what does this have to do with trading this week? You have to turn your brain off a little and recognize what the market is doing. The NASDAQ is currently above it's 200 day moving average and solidly so. The S&P 500 is solidly above it's 50 day moving average and heading toward its 200. More importantly, the slope of each of these moving averages is flattening out. This leads me to believe that the downside of each of these markets is pretty limited. I think we can certainly move lower, and a pullback would be healthy. However, going to or staying in "risk averse" investments like treasuries or gold does not make a lot of sense from a risk/reward standpoint.

The trade from Friday has been mediocre so far. Mylan (MYL) found support twice in the $12.80 area. If it continues to test that area, it may go significantly lower from there. That would be the time to exit. So far, I am still fully in the position and watching closely.

Rent A Center (RCII) had a nice move from the lows last week and that trade is moving strongly higher. I would like to see it move above the $19.50 area for confirmation that the trade will be solidly profitable. While I currently have a nice profit, it hasn't moved to where I am comfortable yet. I am still watching closely.

I really had a hard time finding something to trade Friday because the volumes were light and the market "floated" for most of the day. I did however get long some of the Coal ETF (KOL). Some of the coal-related stocks have seriously broken out recently. Look at the charts of companies like Patriot Coal (PCX) and James River (JRCC). In situations like this, I like to get long the commodity as opposed to the individual companies. This gives me exposure to the trend without the individual company risk. I tend to miss some of the move in the best performing companies within the sector, but the sector ETF is usually an easier trade with less risk. I will be watching this trade closely, but I feel comfortable with the potential of this move. Until next time, stay low risk..