Here’s What’s Working For Me…
Friday’s impressive comeback off the 894 level
(mentioned in
Friday’s column as a potential fade the opening trade) sheds some new light
on the current market. After four straight down days, the market managed to
redeem itself. Suddenly the fall off into the abyss is not on the radar screen,
although, given the way the market is trading, it is hard to really see drastic
price action in either direction. We have truly entered a period where
nimbleness, regardless of the time frame you trade, is absolutely imperative. My
guess is that this IS the way the market will trade for some time, gone
are the days of a long trending market. Just my humble opinion, but 1965-1982
comes to mind, a little time spent going through charts from then is in order.
First let me digress. A few weeks ago I had mentioned that the quick
volatility spikes intraday were becoming a rare occurrence. Take a look at the
one-minute charts of the S&Ps or the underlying stocks now compared with, say,
just 6 months ago. They speak volumes. As traders, we simply need to adapt, this
will not be the first nor the last time the market throws us a curveball. Over
the years there have always been subtle changes which I have unconsciously
adapted to, but this time it hit me right in the face. If there were ever a time
where the subject matter of Fooled By Randomness
was staring you squarely in the eyes, it is this period of time.
However, radical action is not what is required. The tools that I have
developed over my nine years of trading are not rendered useless. Unlike the
many traders I have seen over the years who constantly were on the quest for the
“new holy grail system” once an approach did not work for a couple of days, the
same argument needs to made now. The question is not what approach is working,
the question is how will your approach fit into the context of the current
market? Notice how this concept does not require a complete retooling of your
mindset, charts, etc.? Do not forget that the years of screen time that I as
well as yourself have accumulated serve a valuable purpose, so valuable that it
cannot be taught and it is priceless as it relates to your trading. I spent nine
years to get where I am now. Do you actually think I would toss it all away to
re-learn? It would take me another nine years to re-learn a new system in order
to be as proficient.
The point I am making is simple. Your approach, whatever it is, is not
invalid. It is invalid in context of the current market environment, but with
minor alterations and adjustments, your experience (feel) and approach can and
will work in the slower, less-volatile market.
I have spent the last few weeks observing intently what exactly is working
for me and what is not. The solution which has worked wonderfully for me is
simply pushing my time frame out (using a combo of 5- and 15-minute bars instead
of 1- and 5-minute bars). I have made no radical changes, I have simply begun to
learn how to filter out the tick-by-tick noise that I used to thrive on and
focus on the bigger picture (bigger picture meaning what will happen in the next
10-15 minutes versus the next 2-3). The chart patterns I looked for are all
still valid. In fact, my ability to read the market on a very minute time frame
(HVT) still plays a huge role. Everything builds upon itself.
Frankly, not since the day when I realized I had “graduated” to consistent
trader versus random profit generator have I ever been more excited. This market
can be traded, and by taking the necessary steps to arrive at these conclusions,
I have accomplished 2 things:
- Remained in the game
- Taken my trading to the next level.
Look at this as a journey to bigger and better things. Learning to trade on
the most minute time frame (HVT) in my opinion is the most solid foundation one
can have as a trader. The techniques and chart patterns that I use in HVT are
the same exact patterns used in my longer-term position trades. Knowing how they
play out on each time frame is the art that gives you the edge.
Looking ahead to today’s action we have lot’s of possibilities. The strong
close on Friday will allow us to re-visit some levels from early last week.
However, I would venture to say that given the fact that last week was a “key
reversal” week, any rebound should be brief. There are a few resistance levels
that need to be breached in order for the short-term picture to change, mainly
917 and 924.55. My guess is that if these levels cannot be taken out by Tuesday,
the trend will head back down.
If we break through Friday’s low, 894, I see the following targets for the
S&Ps:
If this in fact does play out, it will be time yet again to beat up on the
SOX components. Despite the rally in the
indices on Friday, the SOX failed to budge.
The SOX is still well below even a 37.5% retracement (349) off last week’s
high/low. Based purely on this, the “hot” money has not come back to these
stocks just yet.
Stepping away from the technical picture and focusing just a bit on what the
popular press has been saying about the markets currently, you may want to
consider the following:
- The CBOE put/call ratio declined to .68 as of Nov. 27, which is very close
to the .66 reading put in back at the August highs - The number of bullish advisors hit 51% on Nov. 29 according to
Investors Intelligence,
a shade higher than the 46% reading at the August highs. - According to Steve Hochberg and Pete Kendall at
Elliot Wave International,
“After real bear market lows, investors don’t bite on the advance; they stay
bearish even as the market moves higher. This is definitely not happening
now. During the correction of 1994, notice what happened to the sentiment
measures at the bottom of the chart.”
*source:Â Elliot Wave International
Again these are observations and certainly the market
does the thing you least expect. Nonetheless, framing this information as it
relates to your daily trading plan can help boost your conviction not only on
your intraday trades, but your portfolio holdings as well. The secret to success
in the markets is anticipating the next move and letting the lemmings push the
market in that direction once they finally figure it out.Â
Key Technical
Numbers (futures):
S&Ps |
Nasdaq |
| *939* | 1093.50 |
| 931.50 | ***1085*** |
| 929 | **1078.50** |
| 923 | 1071 |
| 916-17 | 1061 |
| 907 | 1057 |
| 901-03 | 1048.50 |
| 898 | 1042.25 |
| **894** | 1039.50 |
* indicates a level that is more significant.
As always, feel free to send me your comments and
questions.