Wave Trading Basics – a little tip on how to trade this tape

In my experience, the market always re-balances itself.     Here’s the way I see the market and it’s possible paths, with a simple explanation of timing.  Knowing this model can drastically improve your trading.  I mean, imagine all the people who were shorting at Vix 80, Vix 60, Vix 50!  Pretty soon I will post something saying, “Imagine all the people getting long in Vix 35”  … hehe.   It really is your job to figure out the definition of “re-balanced”, and the timing of it.   Again, understand the psychology behind it all.

Given our current state of market:  Low volume rally off of November lows, excluding quadruple witching day; Vix reversal to the 200 day moving average; massive relief rallies.

IF:

• Market sells off on low volume = bullish;  this increases the timing for bulls.  Think of the decline in your longs as “the price to pay for a bigger rally.”  It really isn’t something worth dumping all your longs for!
• Market sells off on high volume = bearish;  this shifts the momentum to the bears
• Market moves up on low volume = bearish; this increases the “speed/velociy” of the next selloff (See my “Sisyphean Rally” theory)
• Market moves up on high volume = bullish;  probability for extended rally increases with a “follow-through-day”.  However, this also “re-sets” a lot of other technical indicators.  For example, our perception of volume changes.

Now go make some money fool!

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Been getting some questions on Twitter about some of the longs I’m following and considering to buy.  I am in search of leadership folks, so none of these stocks have the attributes of a relief-rally play (you won’t see a DRYS or an ARTC), they are simply just good looking stocks.  I rarely recommend any longs, and when I do, then usually it’s no more than 5 out of a select basket of 20 stocks I follow.  For now, the list is small, but I hope to build it a little more.  I think most of last year I only recommended one long with zeal and passion… AFAM.  And I will continue to use the pattern in AFAM as something to guide you through finding leadership stocks.

As you can see, I haven’t got up to 20 stocks yet, but I did find more long candidates faster than I thought (starting from this post: http://ibankcoin.com/gioblog/?p=2628).  Must be due to all these false open-bar tails in the market (every dip since November bottom is being quickly bought.  Remember, this happened since Vix dropped below 60, and the market became “different” as no bad news could knock it down).

China Sky One Medica (CSKI)-  I’m liking the accumulation on this stock, but would wait for a signficant pullback before entering.  Today we hit a new 52-high!  In fact we almost hit $20!

California Water Service (CWT)-  received the pullback we expected.  It got downgraded today, so let’s buy this dip soon.

Eldorado Gold Corp (EGO) – right now I’m short this stock on a pullback, but it’s the only gold stock I want to own when I get the chance.  Waiting for sub 7 to get in.

NCI Inc (NCIT) – expecting this to trade similar to CSKI.  Going with this with a “All dips should be bought” mentality.

And that’s it!  I only have 4 stocks so far on the long side, versus about 30 stocks setting up to short.  As long as that shows up on my scans, I cannot get long aggressively, and am now net-short.

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Policeman:  “Be careful pulling out”

I’m establishing a net short position here.  No time to get into detail, but a few alerts came up.  Something like leaders pulling back while ugly stocks still spiking up (it’s okay if both move in same direction.)

– With the exception of AFAM, a few stocks on my new-leadership are pulling back a little.

–  Leadership Education stocks pulling back on profit-taking.  See STRA 5-day.  Expecting APEI to follow the leader down.

–  Leadership Water stocks failed to breakout with market.  See CWT, and watch action on 12-day support = 42.85.  A dip below that would be a healthy correction.

–  AVAV having trouble breaking out of 39.  A pullback here is healthy.

I’m expecting the low volume relief rallies to get hit here.  A little too early to buy EEV.  I lowered entry point under 43

–  NCIT failed to stay green today, but on low volume.  Earnings in about 1-month.  Volatility should pick up here.  Looks like a good swing short here for the rest of January.

–  Bad stock, ARTC, up 100% after completing consolidation 10 days ago.  Just 10 days!

–  Forgot to mention, keep CSKI on your watch-list.  This one looks good on a haircut.  Off to get myself a real haircut, keeping the sideburns for fun. Lol.

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I hate to be a knife catcher, but the way the media has been pumping the “world markets” as being super bullish, flaunting their “extended gains” is starting to irritate me immensely.  I plan on catching EEV by the handle, then using it on a myopic bull.  Perhaps I will come in a cloak, and deliver the dagger.  It’s a crazy bearish equation that not many can see.  Well, I’m not meant to be seen anyway..

rising on hope + rising on low volume

Here’s an example of the hope:

Asian markets rise on hope

World Markets Extend Gains, Nikkei up 0.4% (Lol)

Friends, this is not a healthy market to be getting long in, but if you were prudent enough to get long when the Vix was in the high 50s (when we kissed the 60s good bye, early in December), then you should begin to sell some stocks to the dumb money.  If you’d rather ride this out, which is a viable option to swing trading this tape, then I strongly suggest you start buying some hedges, for example, getting long SRS or EEV here (due to panic in the bear camp, I have a buy-limit set on EEV between 43.50 – 44.50.  I will gladly override that), which will help you to “buy time.”  Right now, it’s a little difficult to use shorts as a “hedge”, I mean, did you see the reversal on MELI on Monday (maybe energy’s sell-on-the-news is a place to short)?  That was a bear killer.  If you’re having a little difficulty finding a bear-trade to hedge longs, then go with our default strategy for uncertainty… lighten positions!

-gio

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Say goodbye to the keyboard, and hello to the MacBook Wheel.  Everything is just a hundred few clicks away!…

Short AAPL @ 97, set stop to 99 for a swing trade.  I got my limit set.

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I am initiating a new watch on the following stocks for the next few weeks..

AVAV

NCIT … cleared a buy point.  I’ll post it sometime this week.

CWT …I’m bullish on water.  Weird huh.  But, I was alone for quite some time when I was bullish on home-health-care.  It’s water in 09… just you wait!  Or is it Gatorade?

Dudes… I am waiting for these stocks to pull back a little before entering any positions.  Take a look at AFAM’s chart in the past 3-months from early December, that will tell you how to play leaders.  These bullish stocks almost always pull back on lower volume, and bounce off key supports.  Search for these points.  I haven’t recommended any longs in a long time, because the market was just stupid ugly.  But whether you’re bearish or bullish on a certain timeframe, it’s good to at least keep some plays against the current, just to keep FRESH. 

Time to get “Fready”… Fresh and Ready.  (it’s pronounced “Freddy”)

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