Consistent with the up-and-down nature of this market in particular, here are two short and three long trading ideas. I cannot emphasize enough how important it is to be ready for anything. I recognize you might respond, “Well, c’mon Chess, you can ALWAYS say be ready for anything in the stock market.” And you would be correct. However, when you have a V-shaped bounce like we have seen over the past six trading sessions off of a breakdown, there really is risk all the way around.

Much like when you play an undefeated football team, you cannot afford to make the same mistakes as you would against a mediocre team. Similarly, when you are facing a challenging stock market, you have to push yourself to wait for triggers on setups, respect how quickly the tide can turn, lock in gains, and cut losses quickly.

See my notes on the charts below for more details about why and where I think these plays are potential trades.

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The V-shaped rally off of the Thanksgiving week sell-off continues higher this morning, with the bulls wasting no time coming out of the gate sprinting. After the rally we see last week, a Monday morning gap higher has me looking to lock in some hard-fought gains for the sake of discipline. Accordingly, I locked in some more gains in FIRE at $34.20, which I had discussed many times in this tab and had bought at $31.70 inside 12631 last week. I am now entirely  out of that position again, after successfully trading it over the past few months. However, the long-term technical breakout and short squeeze potential remains intact and has me intrigued to revisit the stock once again.

The cloud-computing names are surging, in large part off of the news that SAP bought out SFSF over the weekend. These types of squeezes add to the frustration of short-sellers, given the sudden change in momentum we saw last week. Hence, the V-shaped bounce is designed to frustrate just about everyone. However, I am still focused on exercising some patience until better setups emerge, which would likely require a few days of sideways action.

Specifically, I would like to see more charts set up in the way PIR is, basing tightly above all of its daily moving averages. You can see below that a move through $13.90 would have me very interested in going long. Note that earnings are on 12/15.

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It seems as though this setup has been happening for much of 2011–We would base/consolidate and come close to breaking higher, then break down in a fast and furious manner, then see a V-shaped recovery, only to see it either quickly fall apart again, or base out for another frustrating breakdown. Either way, the market is continuing its V-shaped move off of last Friday’s lows this morning, as we are quickly moving from the low end of a massive multi-quarter trading range up to the top. Underneath the surface, financials, retail, and consumer discretionary are all leading the charge higher.  The transportation stocks continue to act impressively, suddenly threatening a breakout to multi-quarter highs. Even though some more basing action on top of yesterday would be preferable to putting on more long exposure, the market seems hell-bent on not letting that happen in order to catch the majority of traders out of position.

I covered the last portion of my AAPL short for a small loss this morning, respecting the fact that even though I would like to re-short it soon, the market and stock are basically moving higher regardless. In addition, I locked in some nice gains in my FIRE long inside 12631, retaining a small partial position which I will hopefully add back to soon. I have a few other longs on, but nothing too heavy yet. Their overall chart patterns are just too loose and sloppy for me to get very aggressive here, despite the exuberance associated with these dramatic V-shaped moves that come from sharp declines and then rebounds.

The market is jerking us around today, although the bears certainly missed an opportunity early this afternoon to break us down. Given the sharp advance we have seen this week, this type of action is largely what the bulls were looking for. However, I do not want to jump to conclusions just yet. There is plenty of work to be done to tighten up chart patterns and set the stage for a sustained move higher.

One of my longs inside 12631 has been FIRE. I sold out of it a few weeks back for a win, and recently added it back. The reason why I remain so enthralled with the stock is because of the long-term viability of the chart. In addition to being a low float/short squeeze play in a hot sector, not the breakout from long-term resistance. Even as the market broke down last week, FIRE never really gave up the goose. That nasty shooting star candle two weeks ago seems to have been stopped in its tracks, and the stock looks to be on its way back higher.

If the market continues to improve, cybersecurity and FIRE are where I want to be on the long side.

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In the world of potheads, “420” is code for blazing tree and all things dealing with kine bud. In the stock market today, the Dow Jones Industrial Average is as high as a kite, hovering up near 420 points for much of the session. In many respects, you can argue that the liquidity being offered up by central banks around the world is a sort of drug that equity markets have been craving to stave off withdrawl symptoms. It is interesting to discuss, but I have to always come back to the fact that I am stock trader and arguing with the market is not what I do best. 400-point rallies tend not to come in the established part of trending bull markets, but they do usually come either off a major correction/bear market low or during the meat of a bear market in a brief counter-trend rally. There is no way of knowing which one it is just yet; Only time will tell.

As you can see below on the intraday chart of the SPY, either you caught the gap up this morning or you did not. Since then, the action has been subdued on the whole. I am not making any moves just yet, but I do have my eye on some potential shorts inside 12631. I will let the market dictate to me as the beginning of the new months tomorrow whether I should continue to stalk them.

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I made this observation for 12631 members inside our chat room this morning:

chessNwine

The Nasdaq is lagging the major indices again today. Usually that is not a good sign for bulls, especially with the Euro soft. Mixed bag today.

10:36:44am EST on Tue, Nov 29, 2011

Since then, the Nazzy has turned red, and many stocks underneath the surface are lethargic. Keep in mind that many high growth stocks are housed in the Nasdaq, which makes it an important index to monitor for risk appetite, even more than the Dow Jones Industrial Average with its stodgy, old firms.

While we may still be in end-of-month bounce mode, when I see the consumer staples (XLP) clearly outperforming the Nasdaq today, I am in no rush to throw money into the pot.

Compare the two intraday charts below of the XLP versus the Nazzy. Not exactly a full “risk on” trade, just yet.

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