That was some serious strength into the Close in the Financials. WFC, MS, and GS all finished at their highs. WFC was strong like a bull. The buying was relentless. And we saw something old school (not the movie) with bids not dropping, and then stepping higher, like back in the late 90’s. WFC was bought like YHOO in the late 90’s. Talk about strength. Wow!
We have completed a very long yet profitable week. This was a solid week for SMB and our traders. How did we do it? We never fought the trend.
I keep hearing from the prognosticators that we are due for a sell off. My independent research (ok this consists of just my observations) has concluded that a majority of the CNBC guests have been predicting an imminent down move for weeks. Save of course our own JToma, who has continued to instruct market players to keep a long bias for the market leaders with short term trades. Where does he trade?
Will the banks have to raise more capital? Will it be harder for businesses to borrow? Will unemployment rise? What about inflation? These are all questions being asked and give us pause that we can trade much higher. But I am not Nostradamus. And so far there have been no indications on the tape that we are headed lower. This could change on Monday, but right now, at this time, there is nothing to suggest our next move is down. And until we see this we trade with a long bias.
I thought we would open it up to those who read our blog and ask: What gets you short this market? We will share our answer on Sunday. Please share your thoughts on what you are looking for from this market to get short.
Anyway, this is what I am starting to think about. And over the weekend I suggest that you make a list of your own. Like at the bottom when we suggested you make a list of things that will cause the market to bounce. What is on your list of what makes this market pullback, or sell off, or reverse?
Enjoy your weekend. Don’t forget to follow us on twitter.
6 Comments on “What Will Make this Market Trade Lower?”
For this kind of stretched out intermediate term trend I first look for stocks with Keltner channel break on the daily time frame, then for an increasingly sharper intermediate term trend, preferably a rounded pattern to the upside, and finally I look for a sharper multi-day/week spike in ATR.
Since every single head and shoulders pattern in SPY turned out be a bull flag after a gap up over the previous range, I don’t try to predict major reversals, just some kind of quick pullback on relatively high momentum.
For this kind of stretched out intermediate term trend I first look for stocks with Keltner channel break on the daily time frame, then for an increasingly sharper intermediate term trend, preferably a rounded pattern to the upside, and finally I look for a sharper multi-day/week spike in ATR.
Since every single head and shoulders pattern in SPY turned out be a bull flag after a gap up over the previous range, I don’t try to predict major reversals, just some kind of quick pullback on relatively high momentum.
I want to see the indexes break the uptrend and take out the highest low — then I would have a bias short. That means I increase my position size for short trades and decrease my position size for long trades.
This process usually happens in 3 stages:
1) Leading stocks start to break uptrend and highest low.
2) Leading sector ETF (e.g., QQQQ, IWM, XLF) break uptrend and highest low.
3) Broadest markets (e.g., SPX and INDU) break uptrend and highest low.
The above would be textbook. There are nuanced variations of this process that can shift a trader’s bias from long to short. But remember: In order for a large selloff to occur (something like retesting old lows), the market must first move through higher important levels of support. So, wait til those higher levels are penetrated before loading up the shorts. In other words, to drop from 10 to 1 you must pass through everything in between — so enter at 7 and you have less risk and you are not playing a fools game trying to pick tops.
Happy trading! SMB is awesome!
Damien
I want to see the indexes break the uptrend and take out the highest low — then I would have a bias short. That means I increase my position size for short trades and decrease my position size for long trades.
This process usually happens in 3 stages:
1) Leading stocks start to break uptrend and highest low.
2) Leading sector ETF (e.g., QQQQ, IWM, XLF) break uptrend and highest low.
3) Broadest markets (e.g., SPX and INDU) break uptrend and highest low.
The above would be textbook. There are nuanced variations of this process that can shift a trader’s bias from long to short. But remember: In order for a large selloff to occur (something like retesting old lows), the market must first move through higher important levels of support. So, wait til those higher levels are penetrated before loading up the shorts. In other words, to drop from 10 to 1 you must pass through everything in between — so enter at 7 and you have less risk and you are not playing a fools game trying to pick tops.
Happy trading! SMB is awesome!
Damien
Not going to write a book here because I am just a novice who has read a bit about Dow Theory, however $TRAN keeps approaching $INDU on a YTD percentage gain/loss basis, which is very interesting. My thoughts are that we are at somewhat of a “Public Participation Phase” where money and fund managers who got crushed last year don’t want to miss this momentum. After watching CNBC for so many years, usually when almost all of the talking heads are saying the same thing… the opposite happens.
Just a few thought from an outsider who loves the market and enjoys this blog.
Not going to write a book here because I am just a novice who has read a bit about Dow Theory, however $TRAN keeps approaching $INDU on a YTD percentage gain/loss basis, which is very interesting. My thoughts are that we are at somewhat of a “Public Participation Phase” where money and fund managers who got crushed last year don’t want to miss this momentum. After watching CNBC for so many years, usually when almost all of the talking heads are saying the same thing… the opposite happens.
Just a few thought from an outsider who loves the market and enjoys this blog.