ETF Trading with Larry Connors: Markets Price-In Bad News Ahead of Weekend


Here is some great end of week/end of month/ end of quarter analysis from Mr. Connors.  Pay special attention to this admonition: “But with short interest so high and everyone (except the long only crowd) positioning themselves for the worse, any good news is going to lead to large rallies. If the good news is structural, the rally could be very substantial”.  In other words, don’t get caught with your SHORTS down!  :)
 
 
By Larry Connors | TradingMarkets.com | September 30, 2011 08:55 AM 

 

It’s only appropriate that the morning of the last day of the quarter is again dominated by negative news from Europe. The unwinding of long positions followed by the triage has led to one of the more volatile quarters in history. And the media, with their lack of insight, is having a wonderful day leading most stories with “this is the worst month (quarter) in X years for (fill in the index or commodity here)”.

The market is getting to the point where it’s now priced-in a lot of bad news. Should the news get worse, prices will move lower in Q4 (you don’t need me to tell you that). This is especially true as just about everything broke under its 200-day this quarter. But with short interest so high and everyone (except the long only crowd) positioning themselves for the worse, any good news is going to lead to large rallies. If the good news is structural, the rally could be very substantial.

For us, we’re going to continue to trade as we have. I’m very grateful for the high cash levels and the short positions we’ve had this past month and our traditional bear market portfolio has begun to take shape. Add the hedging in (for both the long and short side) and we’re well positioned to handle whatever the political and economic environment brings through the end of the year.

For today, the market is still in neutral territory and even though the futures are down 1% at 7 am, there’s still the potential for the powers that be to try to run the market higher as they did yesterday in order to make the month/quarter look better. Overall though, the trend is down and there is no short-term bias on either side (you can further see that with so few set-ups today in The Machine).

Have a great weekend!

The above is from Larry Connors’ Daily Battle Plan.

To learn more about the Daily Battle Plan – including access to Larry’s daily ETF trading signals, click here for more information.

And for more on ETF trading, be sure to visit us here to check out the book that Stocks, Futures and Options (SFO) Magazine called one of the best trading books of 2009: High Probability ETF Trading: 7 Professional Strategies to Improve Your ETF Trading.

Larry Connors is founder of TradingMarkets.com

 
Friday, September 30th, 2011 Education, Larry Connors, Stock Trading

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