You never know

You guys know that I have had a short bias on the stock market for over a month and viewed this upmove as a pullback to short into. It seemed to go as planned, as the volume on each day's advance was below the volume of the down bars and stocks were finally approaching reasonable resistance points. However, the market has kept on going for the past couple of days, and even the weakest stocks have pierced through logical resistances (in this case, 50 day moving average)

Every set-up in the market is just that, a set-up. There are no promises that any will work and that's why stop losses are important in order to prevent large losses if the set-up does not work. One can never be so stubborn headed in any pattern trade for the market can do absolutely anything. You can bet that I was shorting all the weak stocks on my watchlist at their appropriate resistance levels and was saved from losing big money by being stopped out at their supposedly resistances. One must realize that patterns and trends are only after-the-fact moves. The sole reason that technical traders still rely and use them is because of our belief that markets do trend and do repeat themselves (although we cannot be sure which patterns work until they do).

On a different note, my longer-term view for the market is that we are currently in the beginnings of a bull market phase. Why would I be "bullish" when I am shorting now? I view this downturn was just a healthy correction for the market, as bull markets usually include at least 2 corrections. I view 2008 to March 2009 bottom as a capitulation for all sellers. Although there was not a single day in which we could point to as capitulation, the months leading up to the bottom saw incredible volume and volatility in the crash, which is characteristic of a capitulation move if it were to be a single trading day. Also, the move since March has been nothing short of incredibly strong. I believe at this time, this current correction may take a while longer to gather enough steam for the bulls because of the force and volume of the downmoves 2 weeks ago. Of course, these are just all musings until it actually happens (and obvious leadership has not emerged yet) but if the market does not become unglued to have another quick and ferocious downmove, I will maintain my long-term view.

Feel free to post comments, I will respond and appreciate every one. Also, if you would like me to discuss a certain topic in my next post, post it in the comment section as well. Until then, never leave home without a stop-loss. If there are any questions on the lingo used in this post, feel free to ask as well.