Back In The Saddle
It’s nice to be back in the
saddle! Yet before I get started
with today’s Q specifics, I’d like to express my deepest thanks and gratitude
for the tremendous outpouring received over the past two weeks while my spouse
was battling for her life during and following an emergency appendectomy and
post-operative complications. She is on the mend, albeit slowly, and I
have no doubt that the incredibly vast “Q” network that we’ve
developed over the past year has greatly aided in her recovery and healing,
along with my own peace of mind. It was deeply touching for both of us to
see all of the emails, cards, flowers, and even guidance from
physicians-turned-traders including a dear trading friend in the Midwest. I’ll
touch a bit more on the impact this experience has had on me personally and on
my trading philosophy below.
In the meantime, it’s nice to see that during my absence the intraday Q
“autopilots” remained in full operation, in terms of textbook setups,
including my favorite post-divergence trend changes (some of which included
intraday cup-and-handle reversals as an added bonus), oversold on support
indicators, and 13- and 60 minute supports. In fact, looking at Thursday’s
charts, every single setup in the video
and QQQ School appeared at least once, and some two to three times, with the
13-minute and hourly charts aligning in a way that provided bountiful
opportunity for a few doubles, triples, and home runs in terms of range and
profit potential. (Students:
If you didn’t profit handsomely from Thursday’s formations, please replay tape
#3 and rerun the simulations .. it’s all there.)
As students and column readers know, this is not hindsight stuff. It’s simply
the continued intraday market rhythm that has spoken loudly over the past year,
and in volumes over the past few months. And while the press batters the market
and many interday traders are pulling out their hair upon whipsaw after
whipsaw in light of the recent whippy volatility, it is indeed a glorious time
to be an intraday trader. As an aside, I continue to refuse to refer
to intraday trading as “daytrading,” given the downright stupid
reputation it got when all of the kiddies and hype rooms jumped on stocks in
’99. Intraday trading on the part of professionals in the right way has
of course been a reputable and honored industry for years despite attempts by
some to make a quick buck in the name of tarnishing the industry. But I digress.
As we open the week, the Qs are at a critical decision point in terms of
testing daily price/momentum divergence and the necessary trend change trigger. (For
those oscillator naysayers or those new to the column, a reminder that
stochastics in my view are 100% meaningless unless combined with
divergences and the necessary trend and range identifiers. In other words, I’ll
never sit on a stool with one leg, but give me all three effectively balanced
and that is where the power lies.) Have we had strength divergences
over the past few weeks? You bet, and price moved expectedly back to downtrend
support each time. Did the daily trend change at any time? Not even close.Yet
this is the first time in some time where price has been close to testing a
cross of its downtrend support simultaneously with
positive divergence.
The key test here is whether or not we hold
hourly support, which has failed each time in recent weeks triggering divergence
long trail exits and continuation short entries within the context of the daily
downtrend. So keep your eyes on the hourly trend to gauge the next likely move.
Should we hold or become oversold on support, I’ll get very interested in longer
term longs with appropriate stops just as I did in October 2001 upon a similar
setup as I shared actual entries in the QQQ video. If not, continuation shorts
may be a consideration although I’m frankly not crazy about the reward/risk
ratios on the short side the further we drop.
On today’s intraday timeframe, can you say index divergence? As was the case
during much of last week, the techs are continuing to outperform the broader
market significantly with the Dow down over 300 points and the semis actually green
on the day. Who’d have thunk we’d be discussing the techs as a safe haven, and
it may not continue, but it’s been a gem of an additional signal for trading the
Qs as every the broader market has upticked, the Naz has moved strongly. As I’ve
said before, when they’re handing out free doughnuts, grab one! Time will tell
as to whether the Dow weakness will ultimately spill over to the techs, but
continuation of the divergence or lack thereof may provide clues into the next
longer-term move.
Monday July 15,
2002 12:00 P.M. ET
Life and Trading
Needless to say, I’ve had a great deal of time to think — too much in fact —
over the past ten days, pondering many topics including life, family, trading,
baseball All-Star game ties, and “would Ted Williams really want his body
to be frozen?” (Several have said my warped sense of humor probably helped
me keep my sanity through the recent experience.) Anyway, there is one
trading attribute that will forever be touched and hopefully improved, and that
is in the area of “fear.”
Many struggle or hesitate with trade entries because of fear that the trade
won’t work out, a hesitation that can not only prevent profits but can result in
recurring losses by inadvertently chasing into the retail flow. And while my
past lessons on relying on trade probability over time have touched on this
area, there’s nothing like real and warranted fear in a life situation that
magnifies such a concept ten times over and provides a clearer perspective.
So the next time you feel apprehension in your next bona-fide setup, ask
yourself what is the worst thing that can happen. Further, compare that response
(which should be taking a small stop which is an expected, normal and necessary
part of the business) with losing something truly important to you. Doing so
just might finally push you over that threshold.
Good Trading!
Don Miller