If The Disaster Taught Us Anything, It’s This…

We have some weakening divergence on the 120-minute period which may come into
play in terms of gauging a further ES assault toward 1000, and traders will want
to carefully measure the strength of any midday bounce regardless of whether one
plays the midday pullback with a stop to the south, or simply watches from the
sidelines.

Most of my long-time readers know I believe it’s best for traders to simply
develop their skills to become self-sufficient traders, and totally ignore the
press and industry. And while I, too, try to shut off the outside noise that can
detract from the effective use of probability and low-risk positioning on
one’s chosen method, I can’t help but hear some of the deafening “the bear
market is over” and “buy stocks now” hype I’ve seen in recent days. (I
actually tried to think of a better word to use for “hype” since I try to choose
my words very carefully, but it was the most appropriate.)

Most of you know that I could write for hours on this topic, but I’ll try to
keep it to a few paragraphs. At the risk of preaching the obvious to seasoned
traders, I can’t help but vent another public service announcement and use this
opportunity to again beat the drums I’ve been beating over the last several
years. Plus, the Red Sox are in a rain delay as I write this portion on Tuesday
night.

Sure, other folks are great at telling you when to get in without knowing the
above five components, but where the heck are they on exit guidance when it
comes time for taking profits or stops???  Sort of like taking away a blind
person’s cane after they’ve been led to the street-crossing. This sort of
baloney is why I call exits the trader’s “loneliness decision” in the
educational video.

At this end, I of course have no clue as to what the market will do in the next
minute, hour, day, or year. There are bull and bear markets every day of the
year on multiple timeframes, with each one competing against another. And if
you were to ask me whether I was a bull or bear, it would depend on the time of
day and day of week, for I might be one heckuva bear on a 13-minute chart and a
stronger bull on an underlying daily. Yet are there clearly defined
probabilities based on market patterns and the underlying psychology? You bet
and the concept of defined probability reflects the cornerstone of this
business. But the current roaring hype??? Call it déjà vu.

Yet since the topic of “long-term” index direction seems to be on everyone’s
mouth right now, let’s ask ourselves a few questions. On an intraday chart, I
encourage traders to clearly define supports which provide trade and stop
premises and enter as close to possible in anticipation of the
probabilistic move. That’s simply the goal of any profitable trader or
investor.

I believe it was George Carlin who coined — in a way only he could — the term
“Vu Déjà,” which he described as the “sudden strange feeling that none of this
has ever happened before.”  (Think about that for a second … it’s one of his
classics.)  I think George would have made a great trader — when he was
lucid — for the future is indeed unwritten and the market will do what the mass
population will do over any given period — through the LTCM-like debacles,
surprise rate cut spikes, 9/11 meltdown, 1999 “buy me at any price” craze, 2002
“the sky is falling” period, and yes, through the current resurrection of the
pied pipers. 

Anyone that would have you believe otherwise either wants you to (a) depend on
them, (b) bolster their ego and “credibility” if probability happens to work out
in their favor, or (c) improve their already established positions. That’s
simply the way this game has always been played and why many have referred to
the market as the world’s greatest legal pyramid scheme.

I would have thought the hype and resulting disaster of the late 1990s would
have taught this industry and those who purport to “help” the retail/small
investor some hard lessons. Then again, this planet still has wars, poverty,
prejudice, and homelessness, and on a lighter note, the Red Sox, Cubs, & now the
discovery of Sammy Sosa corked bats (say it isn’t so, Sammy!).