The better part of valor…

090823induOr — he who runs away lives to short another day.  We have often talked of stops and honoring them and of standing firm and steadfast and — oh, all that stuff.  We have also preached on the hairtrigger signal — the price action which is so clear that it causes you to abandon the position immediately.  We had a stop 2% over the high of the little rectangle which has not been reached.  But Friday’s action is sufficiently clear to cause the abandonment of shorts, at least in these index issues.  We call these “power bars”, and when power bars blast across a signal line (the horizontal line on the rectangle) it merits some scurrying about.

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Also of consideration is the principle that a failed signal (Monday’s power bar) followed by another signal is generally a very reliable trade.

Note that our Basing Points method has not yet flashed a bull market signal in the INDU — although it has in the S&P.

Obviously portfolios should be heavily inclined to the long side now.  And short hedges are hard to find.  In view of paucity of good short candidates we are required to watch closely for the index hedge, as we did in this case with the little rectangle.

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