I Have the Hot Hand (Market Wrap Up 04/07)

LEARNING FROM MY WINNING STREAK

You have to remember that trading IS, indeed, gambling because you are essentially wagering on an outcome that has yet to be determined.  Rather than deny or shy away from that fact, you are far better served to embrace this notion and engage in strategically and theoretically correct gambling strategy.  By far, the most profitable strategy is one of selective aggression.  In Texas Hold ’em poker, you should be folding a far greater amount of hands than you should be playing.  Similarly, in the stock market a profitable trader is taking a pass on a much higher number of potential setups than one would think.  You simply must be extremely selective in which stocks you choose to trade. Beyond selection, when you do decide to trade a stock, you should take aggressive action before you miss your entry point. Trepidation can often be just as damaging, if not worse, to a trader’s profits and psyche than hyper aggression.

Beyond correct strategy, however, there are times in all things gambling when you will be luckier and more “in the zone” than others. Trading will seem easy, and the money will seemingly roll right off of the printing press and into your wallet.  Frankly, right now is one of those times for me.  Many of my setups have seen incredible gains over the past few weeks, especially today in the face of an overall weak tape. To be sure, I am–and you should–enjoy the hell out of those times, for that is when trading is the most fun. However, it is also when many traders become sloppy and complacent, and can lead to them making disastrous mistakes.  They decide to go all-in on one stock because they “just feel it,” or they buy a stock which has already gone parabolic because they know it will not come crashing down.

Strategy and discipline ALWAYS matter, even when it seems like you can hit every three point shot with one arm tied behind your back, and Yao Ming running at you with his arms stretched as high as can be.

MARKET SUMMARY

The $SPX finished down 0.59% to close at 1182, as we finally saw a day where , generally speaking, the complacent hot money got a little spooked.  Many commodity names gave back some of the gains they had made over the past few weeks.  Moreover, we tested the trend line of the rally since February. (See chart BELOW)

The bulls did a solid job of buying that dip–down to 1177–into the close.  It would have been very bearish in my view if we had closed on the lows of the day.  With that said, however, we could still see a test of the 20 day moving average which is currently at 1167 and rising.  Overall, I still see us in a vacuum up to around the 1225 level, as per my long term chart posted yesterday.  In the short term, we can easily see some backing and filling.

INDIVIDUAL TRADES

Despite the broad market being down, my trading account saw $AIG up 10.53%, $NEP up on huge volume 7.38%, $PSYS up 1.53% and $ETFC left literally unchanged on the day. Earlier in the session, I sold out of $HMA for a small loss.  In my long term account, $AOL was up 3.98% on strong volume to a fresh high since it became public again.  I have charted all of these stocks in my setups over the past few days, so make sure you check back in for my nightly chart-fest.

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