What Forcing The Issue Can Do To You
Back from a few days in the desert, and the market is still just as dry as
the desert. Where are the 3+ point bursts in the S&P futures? I counted one
yesterday morning, and that happened at a time when you would least expect it,
11:30 AM EST. At this point I had already packed it in on the HVT front and was
building some positions in longer-term ideas (more on this below).Â
So, as is the case during trading ranges, we are left to work on other
matters. Some opt for the golf course, others for some other vice. For me, I use
it as a way to focus in on some longer-term themes I see setting up. First let
me be real clear:
There is nothing you can do as an HVT trader (or
any trader for that matter) when the markets are quiet. Forcing the issue will
only drain your precious capital.
The ultimate move out of this range will make up for
this three-week dry spell. Which leads me to the topic of my article, market
direction.
You would think — by listening to the TV at any rate
— that we have had this runaway bull market for the last month. It feel’s that
way to me as well. However, when you look at the charts, they tell a different
story.
All of the move came within eight days. Since then, it
has been a sideways market. I know from experience that there will be a break,
and when there is, HVT will light up and there will be ample opportunities. I do
not care in which direction, I just want it. However, all of us probably play
the market on a longer time frame, too. In this scenario, it is really important
to draw some conclusions on which way you think the market will go. I know my
decision has been made, and I am slowly building up short positions or puts in a
few names. One of my primary reasons for expecting a move lower is that most of
the “Wall Street All-Stars” are proclaiming a new bull market. That is just one
piece, though. The charts are what confirm (for me at least) that the move will
be lower.
The weekly chart of the S&P futures is starting to tell
the same old story again, euphoria, followed by disappointment. Each time the
market has put in a key reversal bar (KRB)
on the weekly chart, it has led to lower prices. You will recall that my article
on
April 8 mentioned that it was very possible that this may unfold after the
previous day’s crushing selloff. Well, it did play out that way.
To borrow a line from Mr. Dave Landry, “Now
what?” Well, as I said, technically I think we have the basis for some short
trades. Secondly, with earnings season due to begin shortly and a Fib time
window for April 16, the risk is trading lower, not higher. As always, I want to
be where the air pockets may be. I may be wrong in my analysis, but I am taking
positions that will not inflict serious damage if I am. Just like in
HVT, I am just looking
to hit singles and doubles.Â
I am currently looking to short/buy puts in the
following stocks:
MER
EBAY
SMH
If the bloated tech sector, chips in particular, are
still the quasi lead sled dog, then the market is set to head lower. The
SMHs have already
retraced more than 50% of their last run, while the S&Ps have not. A break of
22.69 would not bode well.
In terms of Merrill, a pullback to the .618 or .50 level is likely if the
market moves lower. A 6.5% and 8% gain, respectively.
In terms of EBAY,
I cannot really come up with a technical reason to short the stock. I am,
however, looking for it to hit an air pocket if the market does go into selloff
mode in the coming days. It has run up significantly in recent weeks, and by
conservative estimates, is grossly overvalued. I will be the first to admit that
this is my lottery ticket trade, and as a result, am only dipping my toe in the
water. Sure the odds are against me, but one cannot live life without taking
some chances once in a while.
| Support/Resistance Numbers for S&P and Nasdaq Futures |
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* indicates a level that is more significant
As always, feel free to send me your comments and questions.
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