Not Twisting Words Here

 

There is a real danger in this type of market environment for confirmation bias to overrun your trading discipline. As an example, we saw the transportation stocks outperform on Thursday, which many bulls would point to as a clear positive. At the same time, bears would argue that technology stocks lagged, and consumer discretionary was noticeably weak when compared to defensive sectors like healthcare and utilities. Seeing as the market has essentially flopped around sideways since crashing last summer, there really is “something for everyone” to interpret in their favor or bias, and yet there has been no major breakout nor breakdown that has held true.

Hence, I am focused on keeping things simple with this market and not being too convoluted in my approach. Over the past week or two, I have noted the potentially massive inverse head and shoulders bottoming formation in the IYR, ETF for the real estate sector. As you can see below, now looks to be as good an opportunity as the bulls will have to run this thing up to at least the neckline at $58. If it triggers through $55/$56, then great. If not, then it would not surprise me to just see more of the same type of trend less action indefinitely.

Also note plenty of REIT’s have similar attractive setups as well, basing just above their respective moving averages. To go with the analogy that I have been making on my video recaps recently, I view the stocks on my watchlist as ornaments on a Christmas tree, not to be taken down and played with unless I have two compelling reasons: 1) The individual setups actually trigger a breakout higher, and 2) The broad market cooperates with the idea of breakout plays working well for more than just a few hours or one trading session.

Members of The PPT and 12631 can click here for more potential long trading ideas in the real estate sector.

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The intraday symmetrical triangle on the SPY that I discussed in my last post looks like it is morphing into some other sluggish pattern, which pretty well fits into the theme of the current market. As an aside, when you see a symmetrical triangle where price takes too long to work through the apex, it tends to either outright fail or morph into another pattern. In many respects, this market reminds me of a bumper car game, but without the fun and excitement. Bears and bulls are ramming into each other all day (and night, with the futures), but both sides are reaping little in the way of rewards.

There continues to be a great deal of apathy amongst traders, and the price action has taken on a lethargic feel to it with no sense of urgency. However, the great thing about the market is how dynamic it is, and that apathy can change in a New York minute. Hence, as tempting as it is to close up shop and walk away from the market indefinitely, I have found over the years that continuing to stalk stocks and analyze the action, even if you are not trading, makes you more cognizant of how the market is flowing if and when it improves.

One thing is for sure, though. If you are trying to aggressively day trade each twist and turn in this type of a market, those HFT robots are going to hunt you, and your stops, down…

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In light of the Shanghai Composite continuing to pose a threatening breakdown from a massive descending triangle, it is hard not to think that the “Google of China” will follow suit. The weekly chart of Baidu shows a pretty clear head and shoulders pattern after a sharp, multi-year advance. Just as with Salesforce.com, the $100 level looks to be the key nut to crack for bears playing for a major breakdown. For now, Baidu remains a sloppy and vulnerable chart. If China and Chinese stocks are one in the same, BIDU looks to ripe for a short in the event the Shanghai breakdown is for real.

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