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At the risk of missing out on opportunities, I do not want to get too bogged down in my analysis that many daily charts need a few days of sideways action after their recent V-shaped moves. Case in point, SAP just announced they are buying out SuccessFactors for $3.4 billion. In addition to Oracle previously buying RightNow Technologies, as well as other deals that have transpired this year, management/service software and all things cloud-related seem to be hot. This is particularly impressive given the persistent negative headlines, which kept plenty of mergers and acquisitions at bay back during the 2008 credit crisis.

Not so this time around, and accordingly I am looking for other cloud-based firms which are properly set up. Buying a stock solely because you expect the firm to be bought out is usually a sucker’s bet. Instead of doing research based on that thesis, I prefer to go with the idea that where there is smoke, there is usually fire. The cloud is smoking, and I want to find that fire, but only if the technical setups are there. In other words, the question you should ask yourself is whether you would still be interested in the trade if not for the potential of a buyout.

Three examples of cloud-related firms sporting solid technicals on a weekly timeframe are seen below with analysis.

Members of The PPT and 12631 can click here to see all cloud-related names ranked by PPT Technical Score for other potential ideas.

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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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I am still holding a 1/2 position left of my Apple short, after locking in gains early last week on the first part of it. To update my ongoing, against-the-grain trade for this beloved firm and stock, Apple is currently bouncing off of its 200 day moving average. The 200 day is obviously a widely-watched reference point, and I am not surprised in the least to see some buyers make an attempt down here.

However, the two prongs of my original thesis for the short remain intact. They are:

1. The “Island Top” rare bearish pattern on the daily chart which remains confirmed.

2. The two bearish MACD warnings signs on the weekly, including the MACD cross and divergence.

Also note the potential for the recent bounce off the 200 day moving average to become a bear flag, while most seem to be expecting another V-shaped bounce off that reference point. I may very well add back to the short upon breakdown from a bear flag. However, I will respect a buy-cover stop-loss should the stock rip higher.

Regardless of the short-term outcome of this particular trade, I am at my best as a trader when I make the best strategic decision each and every single time. In this case, as objectively as I can, I believe my analysis is correct and therefore an AAPL short is appropriate. Let’s see if the market continues to agree with me over the steadfast Apple longs.

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When the broad market is trending higher, you often see example after example of a rising tide lifting all boats. Even the stock prices of poorly-run firms with seemingly no catalysts in sight laugh in the faces of rigorous bears, who can win an argument about the trade with everyone except Mr. Market. Almost by definition, life is much easier for bulls who do not put in as much work as they should in discerning the very best and highest probability trading setups.

In the current market, and for much of 2011, life is most certainly not easy for bulls. I frequently discuss the concept of relative strength in this tab, and I have been mentioning it now more than ever due to how selective the market has been with respect to declaring clear winners. Even the clear, high growth leaders in the Nasdaq since 2009 have been flashing ominous signs, forcing me to look elsewhere for a potential changing of the guard. Of course, all of this is predicated on the idea that we do not continue lower into an established bear market, in which case virtually all longs will feel the sharp claws come out.

Should the October lows hold, I am intrigued by the notable outperformance in a few specialty retailers. CRI and PLCE are geared towards children, and both are sporting impressive weekly charts, despite all of the turmoil in markets recently. Contrast these charts to the multitude of broken, sloppy charts out there, and you can see their absolute and relative strength. I also included a weekly chart of Macy’s as an example of another retailer with strong technicals.

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Trading sessions like today show how dynamic the psychology of fear can be in the markets. On the way down, there is great fear amongst traders of getting caught long during a crash. That can quickly shift when we see a huge gap higher like this morning’s, where all of a sudden the fear actually morphs into one of missing out on a spectacular rally. In this day and age of social media and internet, allowing both types of fear to seize control of your trading via egomania can do great damage to your portfolio. One of the recent themes of my posts has been using social media as a trader to your advantage, rather than allowing it to adversely affect your craft.

A better approach is to check your ego and acknowledge that just as good poker players often fold winning hands, good traders often take a pass on potentially profitable trades. There are simply too many stocks and sectors that makes moves on a daily basis to catch all of them. Indeed, in this life, you can anything, but not everything.

The market has done very little since this morning’s opening gap higher. Price has essentially gone dead, as you can see on the 3-minute chart of the SPY below.  The VIX remains stubbornly above 30, which is problematic for me in terms of putting on long swing trades with any type of conviction to hold for more than a few days. Thus, I am still being selective in my long ideas, preferring to focus on clean charts such as SWI, which is above all moving averages and capable of a breakout should the market improve.

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