4Q18 Review: Tactical Trend

Author: Matthew McAleer, Post Date: January 4, 2019
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Selling begets selling – that phrase was drilled into my head in 1998 and 2001–2002 by veteran traders who chuckled at the talking heads looking for intellectual, fundamental causes for vicious downturns. Fear of the unknown will always dominate emotions when a market picks up negative momentum. We used to search for the inevitable “bids wanted” call from the specialists and traders on the floor to find that possible capitulation signaling a get-me-out selling tsunami that would, for savvy traders, mark an ideal buying opportunity. With much of today’s trading handled electronically, the old bids-wanted calls have disappeared in their verbal form but still appear on the screens as spreads quickly widen and large sloppy sell orders done at the market with no regard to bid size or order flow. We got a whiff of that on Christmas Eve as panicked sellers wanted out at any price. Time will tell if those ugly prints were a low or intelligent sale prices; but, coupled with the elevated 1.13 equity put/call ratio last week, perhaps the market is sold out in the short run.

In Tactical Trend, we had a cash reserve of approximately 20% into December. That cash allocation has risen to 40% as stop levels were breached throughout the month. This cash will be used to accumulate positions once short-term price indicators reverse upwards from current deeply negative levels. Some repair work has begun in the markets during the Christmas-week sessions. Some of the areas that appear attractive from a risk/reward standpoint are technology (software) and healthcare.

Matthew McAleer
Executive Vice President & Director of Equity Strategies
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