Still Not Convinced

I’m still not convinced. That was a terrible rally with too much weakness on low volume. Was that a rollercoaster ride or what? You either sat in cash, day traded, or sat through it all. I told you. If we didn’t get a 4-5% up day today, then the chances for the market’s survival diminish significantly.

At one point, I made back my +27% gain from Monday (+ more), but my December gain now stands at +6% at the close. I cut out all of my leverage intra-day and added 25% long positions as a hedge (financials) while scapling this damn market to offset a total evaporation of paper gains. I’m waiting for a secondary entry point tomorrow on any massive breakdown.

On the sentiment side, Bill Miller came out and called a “bottom”. Others paraded on CNBC to call a bottom as well. Too many people are bullish in a bear market. This needs to be cleaned out unfortunately. There cannot be a bottom if there is still optimism. This means Bill Miller has got to go, sorry.

Looking forward, there are two possible formations after today’s action. First, a bear flag. They tend to slope higher, but the breakdown needs to be immediate and sharp after consolidation. Second, we could actually be rounding out (unlikely). This new element sort of changed the risk/reward picture and therefore I had to account for a slightly bullish case within 10 mins of today’s close. However, I am still majority net short (75% short/25% long).

Expect some massive resistance at the 20-day (presently) and 30-day MA’s (coming up). No joke. I will use my reserve margin (100%) plus extended institutional credit to (200%) short the living daylights out of this hellish market when I feel comfortable doing so. That point will be a roll over to the downside, breaking the “blue line” in the 10-day chart. I’d like to point out Danny’s post. His LoBV and Buy/Sell Strength charts look bearish as hell.

And you haters thought I lost real money today. LOL, please. I never had a losing month this entire year and December 2008 isn’t going to break that. You can keep dreaming for my demise. I shall make note of when I do max out on one side (preferable short) as I have the use of massive leverage to bring me back to my +27% on any real confirmatory action.

This is all true unless someone proclaims the Second Coming or a New Paradigm, at which time I will switch out to a 400% long position. Or, the SPX breaks out and closes above 900 in which the above will still apply.

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The market is up +270 points! Oh my goodness, it’s such a big day! No. It’s not. +270 points is nothing. The bounce was expected.

Here’s the problem: We lost 9% yesterday, the 4th largest down day in history, and we managed to gain back “only” 4% on the SPX (or 3.3% for the DJIA). I couldn’t be bullish unless the market made a dramatic turn in sentiment and nearly canceled out yesterday’s losses. I’ll need to see another +4-5% up day tomorrow, to even give the market a chance.

The low volume, itself, is no reason to rejoice. In addition, we had another WTF pattern (but to the upside) in the last hour. Even that rally was littered with deep, irregular corrections on the way up. To be fair, today is considered a neutral or consolidation day. I hold onto positions in the direction of the prevailing trend, which means that I remain short.

Today’s +270 point gain didn’t bother me one bit. I’m still up +16.4% (incomparable to the +27% of yesterday) which gives me a large buffer to the volatility and, like many of you, I became numb and accustomed to the 3-9% days we seem to be getting every day. 270 point days, up or down, are no longer “big” days, they’re “normal”. Do you remember the times way back when 100 points was such a big deal? Those times are gone. Welcome to the world of eye-popping volatility.

My timeframe is also to swing these stocks, therefore I keep my plan in mind, unless something drastic happens tomorrow. The swings may frighten many of you, in which case, you should not trade. Many losses are incurred within a neutral trading range. Exercise some patience and discipline, or just sit on your hands and stay in cash.

Make note of the support and resistance areas for tomorrow. If the market does breakout from it’s range, it becomes an uphill battle that requires some type of positive catalyst. The rally must be strong and continuous without deep sell offs. If we breakdown, that will be confirmation of retesting the lows. Either way, monitor the situation with hawk eyes.

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I am up an incredible +27.72% today – a nice way to start off the month, even though it is an unrealized gain. I mentioned that bear flag/ascending bearish wedge in my previous post. I went short various financials, including JPM, BAC, C, etc. and I still hold those shorts expecting a multi-day extravaganza, also known as a swing trade.

My orders to my students/subscribers included: 1) 8:54PM – 100% cash and alerted that “I am expecting to short this market silly very soon” (exact words) , 2) 10:25AM – short 50% (I went 100% a few minutes later), and 3) 3:19PM – I was 150% short into the close before the sell off. These positions will be held for several days, so a daily gain means very little to me. The goal for this week matters the most.

No, I did not expect a -9% down day. I was looking for a -3/-4% day. That late day selloff was absurd and it fueled round after round of massive panic selling. Meredith Whitney obvious added some fuel to the fire (thanks!). However, this slaughter is not over.

We may get a nice bounce or reaction rally, but that means nothing unless the SPX gains back today’s lost -80 points (or close to it), and this must be done tomorrow for the market to even have a chance.

The volume was extremely low (indicating a lack of transactions…atypical of a accelerated sell off) and I expect additional selling for those that weren’t able to -or- refused to sell today. Today should remind people that we remain in a trader’s market. I stay short for the swing.

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My name is WeeklyTA, and I am a Chart Addict.

I got addicted to charts when I was about seventeen, which was seven years ago. I never got off that habit, and I am now a habitual user, and for good reason. See, you have to understand that certain addictions, the ones that make you money, excluding providing illicit sex, are OK for you. Charts have played a significant role in my trading, and they allowed me to produce triple-digit returns in 2006, 2007, and 2008. This year has been my best year yet, and I have rarely relied on fundamental analysis in my trading decisions, except for earnings plays. Every person with a pair of eyes and ears can see what a chart is trying to show them and listen to what…ok, maybe not the ears, but you know what I mean. Charts are easy to understand and read. Even a five year old can draw Fibonacci’s. Charts are most appropriate for short-term traders using technical analysis, which is my discipline.The effectiveness of charting diminishes if you’re making longer-term decisions.

I started investing when I was thirteen, but got lucky during the 90’s bull market, or else I probably would have lost it all. I never had a mentor, and no one taught me anything. I had to learn everything myself, and still do. Hopefully through my daily analysis, I can guide you closer to the Light and help to avoid total obliteration in your trading account. You should be smart enough to make your own damn decisions from there.

I have a simple list of rules, in no particular order:

1) Have a plan and a system. If you don’t, you will lose, before you even place a trade. But you won’t know it until it happens.
2) Get an understanding of Technical Analysis. Listen, it won’t hurt you. Get off your lazy ass and start off with “Stikky Stock Charts“.
3) Forget the news, forget people. Charts never lie. People may have ulterior motives. Charts never come on CNBC and boast “strong capital reserves” or a “strong balance sheet” and then go under within 5 days. The price action tells you almost everything you need to know.
4) Don’t chase stocks. You might be buying at resistance or selling at support. Then, you become the weak hand, slapping yourself silly.
5) The trend is your friend. Don’t be stubborn.
6) Bulls live above the 200-day MA and sellers live below the 200-day MA. Currently, we are very far below the 200-day MA.
7) Prices have memories. This is how/where support and resistance levels are created. They are not just magical lines.
8 ) Bottoms take longer to form than tops. This is because fear works faster than greed. Anything usually drops 40-70% faster than it rises. Just take a look at all the bubbles throughout history.
9) Play the pullbacks. Or the market will play you.
10) The market usually gives second chances. This applies whether you are buying, selling, shorting, or covering. Prices usually fall back to support and resistance areas, giving you a second chance to do whatever you were thinking of doing the first time, but didn’t do.
11) Mark the gaps. This goes for area, breakaway, continuation, exhaustion gaps and island reversal.
12) Volume confirms price action. Volume equals market participation. Don’t go to a party if no one’s there.
13) Practice emotional discipline. Don’t get exhilarated when you gain 5% or throw your computer out of the window if you lose 10%. Trading is like life, there are ups and downs. Deal with it, or don’t trade at all.
14) Don’t trade if you’re under capitalized. A huge loss can knock you out, which brings us to…
15) Cut your losses quickly. Usually, that’s the moment when you realize that it will definitely not go in your anticipated direction. Or, it could be a trusted stop loss.
16) Learn candlestick charting. They are far superior than that bullshit bar charting.
17) Learn to scale in/out of positions.
18) Avoid the trading death spiral. If you lose, don’t be stupid and bet more just to see if you can make it all back. That’s call revenge trading, and you’ll get your ass kicked.
19) Trading takes patience. Avoid impulse trading. Don’t trade because you feel like it. Didn’t you read rule #1?

And for this year: 20) If you want to call a market bottom, you should wait until a higher low is made. If not, you take the risk of being some idiotic soothsayer if you’re wrong. You may also get a time slot on CNBC.

There are many more rules to follow, but these are some basics.

I look forward to giving you your daily hit.

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