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Deadly Ambiguity With Big Profit Potential

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Rangebound markets tend to generate a lot of whipsaw signals that are just noise. I call rangebound markets “meat grinders” for a reason. They tend to crush systems designed to find 3-6 week swings. I try to avoid the worst of that, while allowing picks room to move around before breaking out in the expected direction.

What makes rangebound markets interesting is that when the market finally does break out, one way or the other, a big move tends to follow. Furthermore, the initial move out of the range tends to be explosive. To take advantage of that, it’s necessary to take positions in advance in charts that appear to have potential to do that, even though many won’t. The idea is that one or two big movers will more than compensate for the ones that bleed.

1357 stocks met the initial screening criteria in the current screen. 3.1% of them rendered signals on Friday. The rest were already moving in the direction of the most recent signal. There were 25 buys and 17 sells. That compares with the previous Friday’s 56 buy signals and 7 sell signals. This marks 2 straight weeks with more buys than sells after a string of four Fridays with a majority of sell signals.

All charts have a measure of ambiguity, especially in these rangebound environments. This week’s degree of ambiguity seemed even greater than usual. As I reviewed the 52 charts with signals, I saw a lot of “on the one hand – on the other hand.” I ended up choosing none of them. I’ll stand pat with what we currently have on the list.

Current picks are summarized in the table below (subscriber version only). I’m foregoing stops this week to give room for something to happen one way or another. My thought is that if one takes a hit, I’d look to exit on the recoil. But I want to give room for the ones that are going to run the right way, room to do so.

Table (subscriber version only)

The strategy and tactics opinions expressed in this report illustrate one particular approach to trading. No representation is made that it is the best approach, or even suitable for any particular investor.

These picks are illustrative and theoretical. Nothing in this report is meant as individual investment advice and you should not construe it as such. Trade at your own risk. 

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