Zoomers need a rising market - so you always trade with one eye on the market. In our weekly wrap-up, we follow the market for the latest clues. We don’t claim to call tops or bottoms - we don’t need to. By being a week behind, we ensure the trend is on our side before taking action. Here’s how the outlook evolved since the market bottomed on March 6:

March 1:
“CASH is still your best bet… But we need to know what we are waiting… for. A growing number of pundits are saying stocks are dirt cheap, the market is oversold, etc.; but the record amount of cash on the sidelines is kept in check by the prevailing doom and gloom peddlers… BUT: in this business, price is the best advertiser… As soon as [prices] start moving up, all the opinions go out the window as the crowd scrambles to deploy the cash, gripped by performance anxiety. We don’t know WHEN it will happen, but we do know HOW it happens. That’s what we are waiting… for.”

March 15:
“The improving market has produced a smattering of decent breakouts among both zoomers and value plays… It’s better to keep an eye on both… and let the market decide.”

March 22:
“…there seem to be roughly three themes working…: (1) New techs that went public before the crash…; (2) Deep value: large(r) caps that have strong hard-to-duplicate franchises…; and (3) Odd balls with great numbers, great charts, but low volume…”

March 29:
“Don’t expect a smooth ride: there are plenty of bagholders waiting to sell to break even at higher prices, predictors not entirely convinced the worst is over until it’s over, buyers who missed the move and want to shake you out to buy at a discount… Best to take cues from the market itself, not the talking heads. If you missed the move, look for fresh breakouts rather than chase extended zoomers.”

April 5:
“Just like in the bear market almost every stock was going down, almost every stock is going up now… The unprecedented selloff created an “anti-bubble” - so it’s logical to seek zoomers in oversold stocks that have formed good bottom bases.”

April 19:
“If history is any guidance, deep value stocks breaking out of bottom bases may provide spectacular returns, particularly if they are Chinese… Just remember: these bottom bases are risky, more prone to failure, and more likely to move in a series of bottom bases until acceleration really kicks in.”

May 3:
“Don’t brood over missed runs… Traders’ appetite for risk is back but they are likely to go after the easy money: a short squeeze, a quick runup… then dump and move on. Don’t be left holding the bag based on some long-term analysis or learned prediction. It’s easier to follow the quick money by rolling over your gains into new breakouts.”

May 10:
“The market action on May 7 was worrisome. Whether it’s just a hiccup or the beginning of a rollover is too early to tell.”

May 17:
“Looks like the easy money in bottom fishing has been made. If this correction turns out to be nothing more than an orderly pullback after a strong run, the waiting time has still lengthened and the hunt for zoomers got a bit tougher.”

May 25:
“The market has given out contradictory signals. On the one hand, it’s at a critical juncture where the benefit of the doubt should go to the down side… On the other hand, the correction feels mild, orderly, and normal so far. The bottom line: nobody knows where the market will go and how bad it will get. Don’t believe anyone drawing lines on a chart or citing fundamental indicators. Best to just watch and follow. The market can as easily right itself as go into a tailspin. Capital preservation and at least some hedging… are essential for now.”

May 31:
“The market has righted itself for now. The more doom-and-gloomers you encounter, the better. Since they are out of the market, they cannot make it go down by talking. But they CAN make it go up as the fear of missing out makes them abandon their elaborate theories and chase stocks.”

June 5:
“Caution is in order. Not predicting the end of the rally - just that when the crowd finally decides to get back into the market, the downside risk increases as institutions begin to dump junk into the euphoria. Too many stocks have run “on credit” - improving expectations, not improving fundamentals; and many runs are now fragile and/or unsustainable.”

(To comply with the rules, we stripped out specific stock recommendations and suggested trading moves. Those suggestions are obsolete by now anyway. The purpose of the look back was to demonstrate the value of following the market itself over listening to “learned” predictions.)

Slav Fedorov is a full time stock trader and founder and managing member of TradingZoom, LLC. TradingZoom provides timely stock picks in small cap stocks to part-time traders who can’t watch the market throughout the day.
http://www.tradingzoom.com/

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