Being Realistic, Being Honest

One of the hardest and usually most foolish things you can do in Analysis of the market is to announce your opinions. People are looking for a guru, always, there isn't one. Even Warren Buffet has had some pretty hard years, which means we can't be right all of the time; this is why we have risk management.

There is a very real human proclivity towards defending one's stance taken, the market is too dynamic to allow anyone to take a stance and be right about it every time. When we announce our stance, we put ourselves in the unenviable position of either being honest with yourself and others and saying "I was wrong" or as human proclivity usually dictates, to stand there in defiance of the market and continue to defend a stance that you know to be flawed. It all comes down to that simple saying that seems puzzling at times, except times like this, "Do you want to be right or do you want to make money?"

So how do I personally handle it? I have an obligation to my members to be honest with myself and with you. You have an obligation to be honest with yourself, you'll find if you are, you probably won't have those huge 50% declines in certain positions that many of us have experienced at some point. This is why I say trading is a very spiritual endeavor, if you do not uncover yourself honestly and transparently, chances are you won't make it very far in the market. This IS NOT a one time ordeal, it's never ending, just as you are a never ending student of the market, you must also be a never ending student of yourself, your flaws, weakness, strength, limitations and when appropriate, you address them until the next layer is peeled away. The market can teach you more about yourself then just about anything or anyone.

Being we aren't fortune tellers, we take the evidence we have at hand, we look for the strongest probabilities-objectively- and we decide whether to jump in or wait it out-that's your key advantage over Wall Street-you can wait it out, they can not.

So, we are onto next week. Take a look at this chart, each box shows a candlestick reversal of some kind, either a Doji, Star, Hammer, Hanging man, etc.

We have seven on this chart alone that successfully called a short term reversal and two in yellow boxes that did not. Those are decent probabilities. The SPY here, put in a Doji Friday, the SP-500 (the Index that the SPY tracks) put in a hammer, both are interpreted in their positions as upside reversal signals. Last week I showed you the strange behavior the market exhibited in daily accumulation and distribution, rather then the typical type which occurs at swings, rather then on a daily basis. I think it had to do with the Iran/Israel situation that seems to have passed for now; Smart Money didn't want to be holding any big positions with such a wild-card out there. Now that they've collected the August Call premiums, they are free to finally let the market bounce, something I've been looking for the last week. We have the Friday accumulation I showed you and the reversal signal in the SPY, QQQQ, DIA and IWM.

I warned that this bounce "could" be pretty nasty, a sharp move to the upside. The market is like Judo in a way, it uses it's opponent's momentum against their opponent to minimize the need to lay out cash to turn the market. This is the point of false breakouts, temporarily failed price patterns and more. For example, assume the market made a new high, most shorts would be squeezed out of their positions, buyers would enter the market in droves and then it takes one simple day to reverse that breakout and put all of that new money at a loss, that in itself creates downward momentum as the longs continue to sell, the market continues to drop forcing more longs to sell and the shorts to re-enter the market-and just like that, they've used dumb money's money against them to create the sell-off that they shorted into on the breakout day and sometimes before as the market rises and shorts cover.

This is my first instinct, not a new high, but something scary enough to create that tidal wave of human emotion-Fear and Greed, the movers of the market.

So, we can look at the longs that are on limit orders on the current list and set alerts for when they trigger and ride along the bounce for a bit (if that is indeed what we get, and thus far our only evidence seems to point to that) or we can sit it out, wait for a nice move higher and when we see distribution, start selling and adding to shorts at much better pricing.

Here's the accumulation I see in the SPY...

You can see at the red arrows distribution and the market sell-off, the white arrow is accumulation on Friday-which was pretty much the last day the Israelis could hit the new reactor before it was fueled. The white box is a leading divergence-which is powerful accumulation and THIS is the normal accumulation I see before a swing up, unlike what we saw last week. In addition, the accumulation has made it all the way to a 15 minute chart, which is significant, but not past it. This implies we will see a move up that will last at least a few days, we have to see how they react to the move up, do they start selling or not? I think $110 is an attainable target on the SPY, $112 is not out of the question. For this to be an effective and meaningful bounce that does what I described above, it will have to be convincing, that means a big move, possibly higher volume, and probably closes near the highs of the day. I am largely short and this does not phase me, it actually is something I've been anticipating and hoping for. If what I see is correct, it will just make the downside break that much more violent when that time comes which I believe is not far off.

I've written here and at Trade-Guild quite a bit about stops, I'd recommend reading them. You must absolutely apply any stop strategy within the confines of your risk management plan. If you have not read the risk management article that is linked at the top of this site under "Get The Most Out Of Your Experience" and not understood and implemented some version of it, you re doing yourself a HUGE disservice-This is the KEY to your success.

Any short trades with a good profit in them you may want to consider taking some of those profits, the reason being, if I'm correct about this, you'll be able to get in again at good or better prices and make the money a second time. I personally will hold my core short positions that are meant for the long term as there are only a couple of days in a downtrend that contribute to the move down, we can usually time them pretty well, but not perfect and I don't want to miss that one day that takes the market down 3%-individual stocks usually twice that and the leveraged positions 2-3x that.

So tonight I'm running the scans, looking for anything that jumps out, long or short. Short trades will probably have limit orders attached to them-don't forget to watch the member's only video about our entry system called "SWING 1", some trades may have that designation.

So, check the list later tonight. For new members if it says "market" it will be in the notes section and means I like the trade at market open, at market price. Longs are still to be considered counter trend so I would keep that in mind when formulating your risk management plans.

LIMIT< means to go short, intraday (unless it says on the close) when the securities price drops below the given limit price. LIMIT> means to enter the trade when prices passes above the limit price. The SWING 1 Entry is explained in detail in the video linked at the top right of the site.

If you have individual questions, please email me. I'll be putting any trades I find on the July/August Trades list, the newest ones will be found at the bottom of the spread sheet.

One last note, as I have told you so many times, what is obvious to everyone is obvious to Smart Money and they will use that against you. There's a very obvious H&S top, ultimately I believe very strongly we will be setting new bear market lows, but Smart Money could very well try to create a false breakout to make the pattern appear as if it has failed, that is the nuclear option, I don't know that they need to do that to accomplish their aims, but it is within the realm of possibilities.

Don't forget to set your alerts, www.FreeStockCharts.com is the best FREE, real time trading platform I've seen that will allow you to do that. I personally use TeleChart for all of my analysis during the trading day and StockFinder at night and occasionally during the day for specific indicators.

Have a great trading week