This Week’s Battle Plan

There are four distinct markets that every trader and investor gets a
chance to play in. These are:

     1. Bull Markets.

     2. Bear markets.

     4. Counter-trends within bear markets.

Many, many, many traders and investors only have the ability to play
within one of these markets. In 1996-early 2000 everyone who bought a
stock considered themselves a genius. Today, many of these investors
won’t even open their brokerage statements (that’s if they still have
a brokerage statement). The carnage of the 2000-2001 bear market was
too bad. So when the bull market of the ’90s led to the bear market of
2000, the buy-only crowd was dropped on its head and replaced by the
short-selling “Masters of the Universe” who assured us (correctly
for 18 months) that markets would never rise, the consumer would never
buy again, equities were dead and all the other negative energy that
these guys feed on. And lo and behold, six months after the bottom was
put in, many of these guys are now playing on tilt, squeezed out of
their short positions and licking their wounds.

The reality is: Most people who are long will make money in a bull
market. Those who are short, lose money. When the market reverses and
drops, the opposite occurs. The “Buy-Only” crowd gets hit
and the “World-Is-Coming-To-An-End” crowd prospers.
There is nothing magical about this. It’s been the history of Wall
Street and will remain its history.

But, and this is important to remember, those who were bullish four
years ago made a lot of money and very likely gave it back. And those
who were bearish four years ago likely got killed, maybe had something
left to play the recent downside but have again likely lost it over
the past half-year.

The point I’m making is not to be a one-sided market player! History
has proven that you will likely never beat this game if you do. You
should grow your skills and abilities to be able to prosper in both
bull and bear markets. And after you have done this, go to the next
level of investing and trading…the ability to play the
counter-trends in these markets. Few traders ever get this far…except
the real pros.

First, we’ll acknowledge we are now in a bull market. It started in
late September and is looking healthier by the day.

But let’s also acknowledge we are in short-term overbought territory.
This by itself doesn’t mean much, especially in a bull market. And
bull markets overbought usually lead to more overbought. But it also
means a correction is likely near.

Also, we’re at extreme VIX
(
VIX.X |
Quote |
Chart |
News |
PowerRating) levels. This too, by itself
means little. In bull markets, the VIX will hit lows and move sideways
for weeks. In bear markets it will rise and stay at extreme high
levels for weeks. The key here, on a shorter term basis, is to find a
time that it triggers multiple CVR
sell signals (something it has not done in weeks). But we are
getting close to these sell signals. And these signals may prove to be
significant. Not long-term, kill-the-bull-market significant.
Short-term counter-trend significant.

Watch the Market
Bias page. If we get a CVR 1 sell signal, it will be off a major
low in the VIX. Historically, when a CVR 1 sell signal occurred as the
VIX made a 75-day or more low, the market has been lower 72% of the
time one and two weeks later. Many times it has been significantly
lower.

On a shorter-term basis, we may be within a few days to a week or so
of a short-term correction. This correction, if history repeats
itself, may be a good one. If this happens, the money will be made on
the short side, and likely very quickly. The VIX will likely tell us
when it is happening. A CVR 1 sell signal and or a sharp move upward
of the VIX is the signal we’ll be looking for. Just keep your stops
tight. Overall, the easier money to be made is in the path of least
resistance and that is higher. But for those of you looking to take
your trading to the next level of mastery, it’s the ability to trade
both sides of this bull that always separates the real pros from the
rest of Wall Street.

1. Carolyn Boroden is launching a nightly Fibonacci service for stocks
and ETFs beginning Monday night. Details and a free trial will be
available on Monday at TradingSubscriptions.com.

2. Don Miller will be conducting a live TradersTalk session this
Thursday talking about “Trading For a Living.” The session
will start at 4:30 pm ET and questions will be taken. Further details
will be posted tomorrow on “What’s
New at TradingMarkets.

3. I’ll be on Bloomberg
TV this Wednesday at 1:05 pm ET. I’ll be talking about the VIX and
what it’s telling us about current market conditions.

4. This week Dave Floyd will be adding a “Single Stock Futures
Watch” section to his
piece. SSF’s will be available to trade in mid-April and I believe
they will be the second biggest event to impact our industry over the
past decade (on-line trading is first). Dave will be actively trading
the SSF’s when they go live and he will be sharing his thoughts and
insights on them with us.

Have a great week trading (and look out for Haggerty today if you’re
driving within a 100-mile radius of Rye, New York)!