What A Patient And Decisive Trader Will Play
Despite the huge run-up
on the opening on the heels of the employment report, the market did
give back a fairly good chunk of its gains by day’s end. Nonetheless it was a
positive day from a fundamental standpoint and that is what will drive trade in
the future sessions. So, say what you will, the trend remains up, although
technicians will point to the this chart pattern as seen below.
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The opening was a classic gap and crap. I waited
patiently for a Fade the Gap and was able to
isolate quite a few, as most stocks opened well outside their upper Bollinger
Bands. At that point it is really a matter of going with a stock that you have
a good handle on, i.e. you have a good feel for the specialist. I had to choose
between Citigroup (C) and
EMC, the two stocks I have been trading
regularly. I chose to go with EMC for one simple reason:
– It is far more orderly than C and as a result
I felt it would allow me to endure what would likely be a lot of continued false
breaks to the upside after the big gap up. I chose wrong. While
EMC offered me more "insulation" until the
S&P’s began to sell-off (which took a while) it hardly came in at all.
Meanwhile C sold off pretty hard. You never
know which one will perform best.
Question from one of my subscribers:
"Why not just take 2 or 3
Fade the Gap trades and adjust share size down on each trade?"
Great question and certainly a logical idea. For
me however, I know my edge comes from watching one stock at a time and really
watching the order flow to keep my edge once the trade is on. More than one
stock and I feel out of synch and not fully aware of all the nuances that I feel
are necessary to fully exploit a move.
Everyone is different, some traders can manage
more than one trade effectively, for me I know my limits.
The afternoon session was when the S&P’s actually
started to move around. By then, I will admit, I was not expecting much, but
then the S&P’s broke, rallied back to solid resistance then sold off again. The
second "break" is the one that is the high probability set-up. The first one
could well have been simply another false break out of the trading range, there
is never anyway to know. Playing the pattern after the break is what a patient
and decisive trader will play.
Meanwhile, the gold stocks got clobbered, most of
them down 3-6%. While most of the charts still look good, and the "story"
behind the rise in gold/gold stocks still seems compelling, I believe they are
at a critical juncture technically.
So while the longer-term view may be in jeopardy,
the short-term trading of Newmont (NEM) will
likely continue to be solid. I continue to find 1 to 2 excellent set-ups
everyday in NEM. Keep your eyes on this
one.
Naturally all markets were turned inside out on
Friday. Bonds, commodities and even currencies. The long
AUD and NZD I mentioned were
stopped out. For now, shorter-term trades seem to be a better bet until the
FX markets regain some composure and determine
whether or not the dollar will remain under pressure. As of Sunday evening
(when I was writing this) the Canadian Dollar
(CAD) was weakening vs. the US Dollar (USD) and may make a run up towards 1.3520
for a shorter-term trade.
| Support/Resistance Numbers for S&P and Nasdaq Futures |
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As always, feel free to send me your comments and
questions.