Video Market Recap 01/31/11

[youtube:http://www.youtube.com/watch?v=fmA1wpAsnxI 550 412]

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Plenty of excellent sites out there include more macro commentary in their links, namely Downtown Josh Brown and Abnormal Returns. I thought I’d share a “Traders Only” collection. Here are the traders that I am reading today (click on links):

• @TrendRida on Brazil and its accompanying stocks
• “The Goat,” @gtotoy, with his famous SPY read going forward
• Vj, @vjland, with unique analysis on the market
• @mb_willoughby with her list of actionable setups
• @traderstewie with setups and analysis for this week
• @daytrend, Vic’s intraday market stats
• @Speerothekid and the rest of the Young Guns crew with some excellent content

There are plenty of other key sources that I check everyday, so be sure to look on the right hand side of your screen for my “Recommended Links.”

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File this one under the “contrary indicators” category.

I was just watching ESPN, and heard famous college basketball enthusiast/love-him-or-hate-him color commentator Dick Vitale describing the college basketball season as an up and down roller coaster ride. He then said, and this is pretty much a direct quote,

“Up and down, up and down. It’s like the stock market…No, wait! It’s not like the stock market. All the stock market does these days is go up, up, up!”

Now, I have to wonder how many non-traders/non-market followers watching the telecast just kind of took that comment in stride, or even nodded their heads in agreement with all of the media coverage this past week about Dow 12,000. I, for one, wanted to jump out of my chair and short every equity known to mankind. In and of itself, though, it is always tough to gauge just how valid a contrary indicator based on sentiment is on “Main Street.” However, I must say that the Dick Vitale comment conjured up memories of that famous quote by Bernard Baruch that he knew it was time to sell at the height of the roaring 20’s, before the 1929 crash, when his shoeshine boy was giving him stock tips. Mind you, I do not see another crash, or even deep bear market, happening anytime soon.

One thing is for sure, though: When you couple the heightened non-financial media coverage of the stock market for much of last week, followed by the technical damage that was done to many key charts on Friday, I would find it awfully tough not to be cautious on the long side here.

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With geopolitical tensions in the Middle East providing blowhards more “Black Swan” material, the price of gold and its ETF, GLD, acted as safe havens on Friday’s equity sell-off. Nonetheless, a look at the daily chart of the key ETF offers a bearish setup, as emotional investors flocking to a perceived area of safety could easily be poised to fall into a vicious trap. As you can see on my annotated daily chart of the GLD below, this current bounce is merely serving as a gap fill back up to a key breakdown point from a major support level on heavy selling volume. Moreover, we now have a declining 20 day moving average, not to mention a 50 day on the cusp of following suit.

In sum, beware the knee-jerk reaction of rotating into gold after watching the instability in Egypt, for it is set up to be a whole lot more dangerous than you think.

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[youtube:http://www.youtube.com/watch?v=kHngF_b3NuE 550 412]

“Go Egyptians!” (h/t kelkun)
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Also, do you really want to try and “buy the dip” with the trannies blowing through prior support?

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In prior posts, I have made numerous analogies of stock trading to playing poker, which I believe to be the form of gambling most like the stock market. The late Chip Reese is widely considered to be the best cash game poker player who ever lived. One of the reasons why I believe he was so successful–and by successful, I mean he won hundreds of millions of dollars during his career–is because of his cerebral approach to the game, as well as his calm demeanor. Whereas plenty of other big name poker pros are action junkies and talented degenerate gamblers, Chip always saw the big picture with gambling.

One of the most famous stories about Chip is that during one cash game, he was losing around $500,000. One of the hardest things to do as a poker player is to get up from the table and leave during a bad losing session. The competitor in you wants to chase your losses back and get to even. However, in this session, Chip’s son had a little league baseball game and, right on cue, he simply left the game when the time came, to everyone else’s amazement sitting at the table.

I think the seven minute interview seen in the video below is well worth your time.

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[youtube:http://www.youtube.com/watch?v=uVsgBACaJgQ 550 412]

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