I hope you newcomers took my advice last night and got your short positions together.
Here's why the NASDAQ situation exerts such a strong downward gravitational pull. When a stock or an average makes a breakout of a consolidation pattern, all eyes have been on the support and resistance level of that consolidation pattern, a breakout is considered by many to be a bullish even and it used to be a fairly reliable bullish event. Now that Technical Analysis is so mainstream, Wall Street knows exactly what everyone is looking at as well. It's like playing cards, but Wall Street can see yours.
So the average or stock breaks out, a lot of buy orders are triggered and a sense of "I don't want to be left behind" becomes overwhelming to many, so like sheep they follow and chase the breakout, this is why breakouts generally see high volume, not because Wall Street was doing a lot of buying. In fact they were more likely doing a lot of selling to those who were buying. A day or two above former resistance (now support) and it's time to let it fall and become a failed breakout, we see them now more than ever, but traditional technicians keep buying them making it an easy poach for Wall Street.
When prices fall below the breakout level, all that volume that represented buyers, now represents holders at a loss so a few with risk management plans start to sell, that creates downward pressure, which makes more sell as their losses mount and before you know it, you have a snowball effect. This is why false breakouts fail hard and fast.
Now things get much more unpredictable, which is why I had you get into your shorts a little at a time a while back. The market's volatility could bounce us, but we just saw a decent divergence fail, that's why I didn't say but, I said buy at trigger "A" and/or "B". However, now everyone expects volatility so maybe the market throws us a curve ball and just slices through all resistance. YOU KNOW WHAT TO DO THEN
No comments:
Post a Comment