Forget about the victory lap, the point is this market is heavily manipulated. I've been talking a lot about false breakouts, I suspected yesterday's action was a false breakout because of several factors-you can read back, but if that were a breakout, it would have been extremely important, the volume would have been huge and today we'd see money flowing in off the sidelines in a follow through day. Instead we got inside days or quasi-Harami reversals. The price move down today was insignificant, it's what the market should have done and didn't that tends to confirm my suspicions that we are seeing a false breakout and false moves will lead to very quick moves in the opposite direction because of the cumulative snowball effect of long positions going underwater.
If you look at the July 10% rally, it took 20 days, the June 10% sell-off took 10 days. FEAR IS STRONGER THEN GREED, at least on main street.
So tomorrow we watch for a pattern in which we see a lower close, the lower the better for the reversal confirmation. Volume does not need to rise, the hallmark of a bear market is low volume, especially in the summer so it's no wonder that our dominant price volume relationship today was price down/volume down, nearly half of the stocks in several averages. We still are not out of the woods, but today was a good start. If you are new, the idea is this is a top we are in, it uses volatility and false breakouts up and down to separate traders from their money.
If at anytime you need quick shorts, check the June list, June 3rd and you can use just about any of those ETFs.
As for some of today's trades: PG gave us 4% in a day, PFE over 7% in a day, STEC is up and we are up at least a point including after hours, ERJ and WFMI are both triggering and they should be good for a decent double digit gain.
What was interesting today was that the cheap longs of 7/29 finally saw some movement-these are the cats and dogs trades as I call them and they almost always pop at the end of a bull run, yesterday they didn't move much at all, today many are close to their limit levels and a few triggered.
I prefer to use the market open/market trade entries, but you must have solid confirmation and we don't so I use a lot of limit orders, they are the "show me" trades and have lower risk profile, but you give up a few percent-the trade off is worth it in this environment.
Either way, for August, whichever way the market goes I have about 125/150 stocks in both directions that will take off with either trend so we are pretty well covered in either case.
The 800 pound Gorilla is still the GDP report and more succinctly the revisions. As I have pointed out, and will again because we have a lot of new subscribers, after all the stimulus, tax credits, Fed intervention, we saw Q3 2009 begin a recovery, Q4 saw 5+% growth which was revised down as well to 5%. Q1 2010 (I can't remember the exact number, maybe 2.6%) was revised up to something like 3.6%-Good news right? Wrong-it makes the recent GDP of 2.4% for Q2 look extremely weak comparatively. This is the basis of Bernanke's Senate comments about unusual uncertainty:translation, "we didn't see this coming". The CBO's recent report made it clear that additional stimulus is just as likely to provoke another crisis as it is to help-actually the last one didn't help much so there's not a lot they can do, which isn't to say they won't try with mid-terms coming up.
The Fed has few tools left. People are saving not spending, banks aren't lending. The Fed's biggest stick is to stop paying interest on bank reserves and still it isn't likely to get them lending or people spending.
The point is-look at the big picture. To put it in perspective, and I love this figure to do that, to reduce unemployment by 1 single percentage point, you need 4 consecutive quarters of GDP at 5%. With everything they threw at this, we got 1 quarter!
So my long term positions are short, I trade the occasional longs when appropriate and the rest are on triggers that you should set alerts for; I believe you can do that for free at www.FreeStockCharts.com-there's a link at Trade-Guild. Right now is not the time to go swinging for the fences, this is a meat grinder so keep your fingers away.
To give you an idea of what 3C is doing, take a look at these charts that show institutional money heading for the exits, not entering the market:
Recent action....
The one min charts show what looks like a small positive divergence and the TRIN index is at 1.54 which is very high. At 2 it almost guarantees a close higher the next day. I'm looking for early strength which is fine. In the context of this pattern the best resolution on the bearish side would be a gap above today's highs with a sell-off in the afternoon taking price below today's lows, then we'd have a very strong reversal pattern. Higher prices would be tested and fail and then bulls would become discouraged and dump their shares-an excellent reversal. Things are rarely as they seem in the market and today the VIX barely moved so it is at levels consistent with a downside reversal.
There will be no new trades listed tonight as we already have a ton that can/will trigger in either direction and you take the trade when it triggers at the limit order intraday, you stop out only at the end of the day right before the close and if at all possible, when you are in a poker game, you don't show the other players your hand, so keep the orders in your mind and only put them through your broker when you want to execute them, otherwise the market makers and specialists know what you have and what your intention is-not a smart strategy in poker or the market.
If you have any questions, as always email me. Until your risk management is airtight, please read the risk management article linked at the top of the page over and over until you can recite it backwards-that's what keeps us in the game until we hit the doubles and triples.
