Homemade Traps

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The V-shaped nature of the rally since early last week’s false breakdown is persisting this morning, with the Nasdaq Composite Index gapping up to multi-month highs. To be sure, the steep angles of ascent on many charts make finding low-risk entry points a difficult task. Beyond that, the S&P 500 found resistance up at the very top of the 1120-1220 trading range today, as it did on Wednesday. For bulls and bears, the traps have been vicious and cruel, albeit sloppy like an amateur designed them.

With the market is as flaky as it has been, I am still largely focused on protecting the lion’s share of my capital. I am starting to see charts firm up here and there,  such as the important transportation stock UNP. However, it would not surprise me to see most charts put in more base building work.

2011 has been a year largely characterized by challenging the discipline of traders with all types of styles, given how many times the character of the market has changed this year. With the fourth quarter well underway, not much has changed in that regard, given the V-shaped bounce off of the lows. At some point, though, the picture will clear up and trend traders will be able to pounce on opportunities without feeling as though they are walking on eggshells to skirt a homemade trap.