Simple Words, Powerful Message

• August 22, 2001
• Dave Floyd

While yesterday’s action
was atypical of most post-Fed trading sessions, there were some good
setups throughout the afternoon. Missing were the usual abrupt moves. Instead we
had a steady grind down with minor countertrend rallies which offered good entry
points on the short side. Where do we go from here? It appears lower if
sentiment and reality are to be a guide, but I will leave the forecasting to the
"professionals" in the analyst community. Meanwhile, I will be on the
lookout for some good trading over the next few sessions as market participants
sort everything out.

One thing was clear from yesterday’s session,
although it applies all the time:  Do not get caught up in the euphoria in
any move. Just when it looks like the world will end or you will make so much
money from your long, is exactly the same time where the market reverses. It is
odd how that coincides. I used to work with a trader who summed it up best: 
"You should be buyin’ when you’re cryin’ and sellin’ when you’re yellin’."
Simple words, powerful message.  Case in point, look at Chart #1, a five-minute
chart of the S&Ps. Each line on that chart indicates a "Key
Technical Number" (KTNs) which I mentioned in yesterday’s column. These
numbers allowed me, and others who were aware of them, to cover shorts before
the market rallied back, taking away some profits, and offering an opportunity
to get short again as the rally failed.

While some may argue the market is oversold on
short-term basis — I believe it is — a good rally up should offer some good
trading opportunities and pump up prices before another leg down. Currently, the
futures are trading significantly higher. I expect there to be some good trading
this morning as market participants further digest yesterday’s rate cut and
"bland" Fed comments.

Key Technical Numbers:

Given how slow the markets have been recently,
remember to "step up" and take full advantage if trading is a bit more
robust today. As Stanley Druckenmiller so eloquently said: “The
way to build superior long-term returns is through preservation of capital and
home runs…When you have tremendous conviction on a trade, you have to go for
the jugular. It takes courage to be a
pig.” 

As
always, feel free to send me your comments or questions. See you in TradersWire.

Dave