Raise the Bear Flag

Over the weekend I sorted the entire stock market looking for those equities that I want to keep a regular tab on that represent a multitude of industries. My second scan I got the list down to 350 stocks, I've been going through each and every one and have now a collection of about 70. I need to further thin the herd, but as I went through hundreds, maybe close to a thousand charts, what I saw was a lot of bear flags, A LOT. Sometimes you'll see different patterns depending on where the market is, when you see a lot of the same it usually suggests something.

Now we also know that the black box systems, (many) focus on breaking up obvious technical patterns. For example, a bear flag is a bearish continuation/consolidation pattern. Most technical analysts will place a short sale order just under the flag and a many times the black box systems will trigger those short sales, then head back up into or over the flag and then squeeze the shorts out of their positions. In this way they can make money on the spread, the volume (they get rebates for volume so the more volume, the more money they make), typically though, the pattern will fulfill it's bearish leaning-after the games are done.

And the black box systems? I know people who work on the technical side of these black box systems and know that they have set up hubs in multiple cities just to reduce their order time by milliseconds-that's how competitive this game has become. The HFT firms are doing the same thing. The age of the Internet brought a lot of changes, right now it's a computing speed arms race. There are dozens of different tactics and they continue to develop (I.E. the flash crash). While we are on the flash crash, sometimes the best thing you can do is not try to beat them at their own game, but change the rules. This is why I NEVER post a stop loss or any kind of order with a broker, everything is mental and 90% are end of day only except for limit order entries. Assume a flash crash occurs, they usually recoup whatever they crashed, but not before they hit all the orders that are on the books (which they can see-why show them your hand). If you don't place your stop and keep it mental, for end of day-a flash crash has no impact whatsoever on you. If your order is placed, you'll likely be taken out at an unfavorable level to see the stock recover within a second or two.

In any case, my point is, widen your view. Use risk management to widen your stops, which means originally you take on less shares until the trade takes off-you can always pyramid the position. So instead of playing the intraday game, step back and look at the longer term-the real trend, devoid of the tricks and gimmicks.

The G20 conference produced a statement basically in which countries have stated that they won't get into the currency devaluing "currency Wars". Human nature being what it is, this, if it starts at all, will most likely be short lived. Countries and politicians will always think me/we first-even if they know the outcome could lead to trade wars that hurt the world economy and individual economies even more. It's just human nature. So what G20 produces originally will be interesting, but likely short lived.

So we look at these bear flags and in many cases we will set limit orders that will trigger when and only when we can see the trend has reversed. Here are a couple examples of long and short bear flags....

Here's a short term bear flag in ING-the pattern and volume are perfect.

BWS is showing us a much bigger bear flag lasting over a month, still the pattern and the volume are perfect. Once that trend is broken, there's a lot of downside.

These are two examples, but there are hundreds I've seen this weekend, maybe more then a thousand.

Interestingly, in many stocks (if they were to continue their move up) are in bull flags and these stocks are the ones that show us that there could be major reversals that are not good for the bulls in the market, such as the dollar proxy, UUP:

A move up in the dollar is generally bad for equities and commodities including GLD which has for now, broken it's uptrend.

There are a lot of things in the market right now that are uncertain, the market tends to not like uncertainties, thus the saying "When the missiles fly, it's time to buy", meaning the uncertainty of war is more damaging to the market then the war itself.

Bull or Bear, there are good trades long and short, I'll be listing some tonight on the September/October list. Other then the trades listed, I have nearly 100 alerts set for patterns that are just about ready to make a play, but I don't want to overwhelm you with trades , so watch the trades listed on the site like the earlier trade listed today.

For Monday I would not put too much emphasis on the market action, much like the Fed, it will take the market several days to decide how it feels about the G20 meeting. Still, individual trades, so long as risk management is used, can certainly be taken.

I'll update in the morning and all of tomorrow, I assume several alerts for trades I marked will trigger tomorrow so keep some powder dry. Tonight you'll find 19 new trades up on the September/October list