Later tonight I'm going to try to give you a view of the market, to show you why, overall I'm bearish on the market. I don't know if I can get it all in to one post in one night, but this is based on overwhe;lming objective data, I don't make decisions based on gut or "Feelings", I do have feelings as I admitted yesterday in this post, "Market OPINION" (note I was very careful to say opinion).
Thie above post is based on what was first predicted last Friday, that we get a bearish engulfing pattern on Monday which we did in 3 of the 4 major averages, then my opinion Monday that Tuesday would see trade hang around the area, then my on Tuesday that this VERY SHORT DU?RATION period on Tuesday was short term accumulation and as such I entered short term positions like AAPL calls and SPY calls for a corrective bounce, but this is all day to day stuff and doesn't change my view point on the market whatsoever.
From yesterday's post...
"However, I have to stick with the charts and an hour or so of 1 min negative intraday charts isn't on the same level as the 5 min positives built yesterday, even though they are weak as well which I interpret as a short duration bounce, thus the reason for options for leverage.
If I have something that's more than emotion, I'll let you know, but I'm human too. However I have to stick with the highest short term probabilities and they are still with yesterday's 3-5 min charts."
This post is dealing specifically with the 5 min positives of 1-day, Tuesday and the call options meant for very short duration trades in SPY and AAPL. I was saying that even though intraday charts looked like the market was going to see downside as it did, overall as far as the short term options in SPY and AAPL calls, the 5 min chart still suggests they'll do ok and I'll hold them.
However even this 1 min chart information was useful as I exited a VXX call position at a small 8% loss that would have been 35% or more today.
We have a lot of different traders in all kinds of timeframes and the market often gives us a lot of information, FOR INSTANCE A 5 MIN POSITIVE ON TUESDAY ALONE tells me there's likely to be a nearby short duration bounce, THAT'S TODAY.
HOWEVER, 1 DAY OF 5 MIN ACCUMULATION THAT "IS WEAK" IS NOT A TREND CHANGE, IT'S AN DAY TO DAY JIGGLE IN THE MARKET, for many of us it's useful such as using it to enter PCLN shorts/Puts this morning or closing a VXX call and not taking a bigger loss, but it doesn't change the trends expected.
People like Cramer will give you a "I'm bearish or bullish XYZ stock", a blunt statement. It reminds me of something I heard in watching Abraham Lincoln last night,
"A compass, I learned when I was surveying, it'll... it'll point you True North from where you're standing, but it's got no advice about the swamps and deserts and chasms that you'll encounter along the way. If in pursuit of your destination, you plunge ahead, heedless of obstacles, and achieve nothing more than to sink in a swamp... What's the use of knowing True North?"
In my view, the same is true of saying, "I'm bullish or bearish XYZ stock", if you don't understand what is likely to happen in the near term, you can easily be kicked out of XYZ stock even if you were correct.
This is what Jesse Livermore, "World's Greatest Trader" was saying in this quote....
"“After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: it never was my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight!
“It is no trick at all to be right on the market,” he adds. “I’ve known many [traders] who were right at exactly the right time, and began buying or selling stocks when prices were at the very level that should show the greatest profit. And their experience invariably matched mine; that is, they made no real money out of it. [Traders] who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make the big money.”
This is exactly why I posted these two charts and the following in a recent MCP post (commentary will pick up again after the "-----" dashed line...
These are the stages and trends of MCP, PUTTING YOURSELF IN THE EMOTIONS OF THE MOMENT (WHETHER LONG OR SHORT) IS ONE OF THE HARDEST THINGS TO DO, BUT GIVES YOU A REAL NOISE FOR THE MARKET.
MCP started at stage 2 Mark-up (2) however as I have mentioned many times, changes in character are important as they precede changes in trend, I just mentioned this Friday re: MSFT (when it was a momo stock) and AAPL recently before the top. At "A" there's an uncharacteristic, nearly vertical price move, these are most often seen JUST BEFORE a stop tops so in actuality they are warnings or red flags, at least time to have a tight trailing stop. At "3" we have a large triangle stage 3 Top.
At "C" we have the break down from the top and then a 5 week bounce which was a +40% MOVE, try to put yourself in the emotional position of being short then.
At "D" we had a 5 month rally/consolidation, again just from a time perspective and after a 40% bounce, as a short this would be emotionally exhausting, but this is why it's important to know what is normal so you can anchor expectations and make fact based decisions rather than emotional ones.
At "4" we have a stage 4 Decline and at E and F we have "Dual Capitulation". People always think after the first capitulation it's time to go long when in fact there are usually at least 2 capitulation events and then months or years to form the next stage 1 base so those going long on the "Blood in the streets" capitulation event are often at a loss for a long time or at least at Opportunity Cost."
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MCP's "True north back then was clearly a short, but there were chasms, swamps and deserts along the way in the form of a 5-week bounce, a +40% counter trend move, MCP was still a short for trend traders, but for others, they need to know what's coming, they need to know so they can decide if they want to try to trade around 5 weeks of opportunity cost that may drive them out of the position because at the time as you sit through those 5-weeks, you have no idea or guarantees that the downtrend will continue. This is why I try to show you the long term and what is right in front of us in the short term.
Being bearish MCP would have been the right call, but how many traders could have "Sat tight" through those kinds of obstacles without having some clue of what underlying trade and probabilities had to say?
So I think we are in a small corrective stage after a recently , nearly unprecedented 3-days down in a row. Is it a big deal? No. Does it change where I expect the market to go or my expectations the 10/9 cycle in now moving toward stage 4 decline? No.
However I can see how it can be hard to keep up on all of this if you are not up on most of the posts.
I was thinking about a short term trading model portfolio and keep the core portfolio, but I'm open to other ideas as well as I can put them on the new site. Just keep in mind, I don't make price forecasts or at least that's not what I try to do, I try to let the market tell me when it's time to make a change and that is often long before it happens in price.
I expect this corrective bounce to be short term in duration, 1 day of accumulation is like 5 gallons of gas, it won't get you very far.
I expect the cycle that started on 10/9 and has gone through stage 1 accumulation, stage 2 mark up, stage 3 distribution and top and even a head fake move, is very close if not already entering stage 4 decline (despite a counter trend move today that we expected)
I also expect the longer term market to see massive downside in proportions that can't be described because we have never had a similar market in the history of markets.
I also expect that a chart like the MCP example above will be a perfect model for what you can expect, look at most bear markets and even bull market that didn't have a "Bernanke put" under them and you'll see they do the best they can to make as many traders wrong at any one time.
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