Keep This In Mind On Strong Trend Days…
The short squeeze is on in a big
way this morning which, combined with fresh buyers, has the major markets
bouncing solidly off their first daily uptrend pullback.
(Forget trying to dissect the news folks, traders do
what traders do.)Â Both the S&P and Nasdaq have once again been in the
“straight-up” mode with volatility dropping below my monitor (VIX.X -2.00 as we
go to press), and both markets are attempting to put in a bullish cup with an
emerging hourly 15MA handle base, with the cup itself sitting near daily
support. Heading into the afternoon, it will likely take a break of at least the
three-minute trend (yet to break heading into the noon hour) to get a
retracement going, while 13 and 60 long supports are beginning to combine on the
920 and 1060 areas on the S&P and Nasdaq respectively.
Following up on yesterday’s column, one challenge I have at this end today in
managing my own trading is the absence of my 2×4. You see it’s currently on
“virtual loan” via email and has a waiting list longer than my local pro hockey
team’s injury list. Now I actually began writing this
soapbox segment last night — which I often do — having no clue of today’s
morning action.Yet my comments would be the same whether the market was up 130
points or down 130 points. Many know my mantra of “scale into the
extreme, adjust stop, and repeat.” And how do we define extremes? Primarily
through any contra-trend support on the larger timeframe, and partly via the
Bollinger Bands. While I know that’s obvious to
course and video
students and many who have been on this column trek for going on two years, I
also know that many traders were short at yesterday’s close, some who were
adding to positions during the day.
So let’s review yesterday’s action. The 13 and 60-minute trends were in control
all day, and despite several three-minute turns to the north, the 13 never
joined along. Fine. So reversal attempts using the higher-risk but lesser
timeframes ended up being scalps or stops, those waiting for the combined 3
and 13 turn were in cash, while the 13 provided a textbook trail for
existing short positions. So let’s move up one timeframe … to the daily. As we
addressed in yesterday’s column, it was uptrending with a first pullback in
progress toward two key supports … which reflects resistance on short trades
off the 13 or 60. Can it bust through? Sure, as no one knows what the market
will do in the next minute or hour. Yet our “respect until broken” theme comes
into play once again which if heeded should help ratchet down the old greed
meter. Scale out completely and then see it break? Great, consider a re-entry on
the other side.
One final point on the issue of strong trend days. At the risk of stating the
obvious for some, strong trends don’t, in the words of my teenager, “hafta”
reverse intraday. There are indeed times the daily chart rhythm provides the
best opportunities and strategies such as Larry Connors’ work exceptionally …
i.e., order entries at the close. Such is the rhythm we have right now as we did
during some of the mega-runs of 2002. For intraday traders, it’s a difficult
rhythm and we just have to bide our time. Even on an intraday basis, there are
times when the 13 will rule the roost, and others where the three will. Some of
my best days over the many years have been when the market has ended flat. If
you share a similar style, the worst thing we can do is look at a +150 day on
the Dow and think we “missed something.” There’s no such thing. Markets
typically chop more than they trend and we just have to bide our time, a lesson
I learned from pain in the earlier days.
ES (S&P)Â Â Â Â Â
Monday January 9, 2003 11:10 AM ET       NQ
(Nasdaq)
Moving Avg Legend:
5MA
15MA 60-Min 15MA
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