Watching and waiting... again!

 The market has had a pretty uneventful week, without much movement in the past 5 days as you see from the Nasdaq chart (much the same with the S&P). At this juncture, I have no idea what to think of the market. If I was short, I would be quite weary of Thursday's market action (intraday chart seen below):

As you see, the market essentially gapped down to begin the day followed by a high volume morning sell order. However, the afternoon was met with an huge, strong upmove that not only filled the gap but actually closed the market at its highs. While I haven't been around the market for long, I have only seen that type of upmove in oversold conditions or a technical pattern set-up, both which are not the case this week. At the very least, I would feel uneasy if I was short.

Now, if I were long from near the bottom of this so far correction, which is always a no-no in trend trading (you do not catch bottoms or tops, they are the most expensive decimal points you'll pay), I would sit pretty. But if I were more realistic and let's say I wanted to get long now, the market is still quite overbought, moving 7% in the past 2 weeks. This is by no means a suggestion to get long, I am just putting myself in other people's shoes now. What I am trying to say is that in my view, both longs and shorts are in a period of indecision here, as evidenced by the "choppiness" (which is a word to describe markets whipsawing back and forth without much price movement) this week. As rational players, when all needed information is not known, we do not make any decisions and stick to information gathering mode.

It is very important to stay out of the market during dangerous times like these. This is when whipsaw losses happen quickly and often. This is when institutions battle it out with each other, as evidenced by Thursday's action. Imagine you are a captain of a ship, who has set sail in pursuit for long lost treasures, the fountain of youth, or whatever mythical riches one can think of. Now imagine that you are in the middle of the Atlantic, with nothing but ocean around you, and suddenly, thunderstorms start to brew. You brace for impact against the lightning and towering waves, clutching onto anything stationary on your ship. Now replace ship with your trading account, treasures with potential profit, the Atlantic with your trading plan and the lightning and waves with whipsaw losses and you got the type of market we saw this week. The journey is always easier after the storm. Giving up a few percentage points in the entry price and potential profit is worth the confirmation in the continuing of the trend from the market. It'll provide a lot more opportunities and a much easier ride to your fountain of youth.

After my short shorting spree last week, which did not work out, I am in full "research" mode, looking for long and short technical patterns to prepare for whichever way the market will go. I still maintain my view that we are in the beginnings of a new bull market, which does require some "convincing" of shorts and others who still happen to be on the sideline with the money. If this correction is as shallow as the low put in 2 weeks before, it gives me more confidence in my 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.

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.