What a weekend on Slope. In my four years of participating on Slope, I can not remember the last time nerves were this raw. Personally, I think its a sign of capitulation, and more importantly, a mark of a market reversal. But that is not here nor there. I want to write about what its like to trade as a Pirate. (more…)
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The question that needs to be asked about this current
market is simply, "is this 1995 all over again or will some sort of
reality take hold?" The answer to
that question will predict how this market behaves for the next several
years. While I fully understand why the
market feels like it will not ever go down again in all of human
history (The January Effect), this rally is now pushing the borders of
absolutely absurd. So I fired up the charts
and took a look under the hood of this current bout of insanity.
I feel the best way to look at "current reality"
is through the distance from the 200 Day Moving Average on the
S&P weekly chart. The size of the weekly
chart gives great historical perspective.
Simply, the mania of the 1990's ended in March of 2000, and since then, the market has had a totally different feel.
I'm going to save everyone the obvious joke about Netflix
releasing a show called House of Cards as their stock price defies gravity and
continues to float on a cloud of hopes, dreams, and Carl Icahn's influence. But seriously, how sweet an irony it would be
if a show titled House of Cards marks the top of Netflix? I'd have to rank it amongst one of the
funnier things to happen on Wall
St. in quite a while. I will make my argument for shorting NFLX on
several fronts; fundamental, technical, and "seriously, its trading at
what and I can short it?!?!" common sense.
Back on January 16th I wrote a post titled "The January Effect" simply stating that the beginning of 2013 looked absolutely identical
to the beginning of 2012. Given the
selloff over the last week I wanted to go back and see if the 2012 analog was
broken and if it was time to wave the "all clear" flag for the
bears. Bottom line, the analog is in
full effect and it looks like the bulls have another full month of smooth
sailing ahead. Again, I'd like to
present the technical analysis via charts with numbers (the numbers are
markers, not wave counts).
During this incredible grind higher bears have made poignant
and insightful reasons why today is the top.
Day after day, the top call fails and the markets float higher. It seems the higher the market goes the more
long winded the reasoning becomes for why a top is just around the corner. I'm a simple person who learns best from pretty pictures and
gets confused by droning theoreticals about market direction. Therefore, I'd like to present the bear case
in two pictures.
Traders have one of the most difficult jobs in the
world. On top of having to figure out
market direction we also have to fight emotion, calculate risk, determine trade
size, pick entries and exits, and battle to stay true to our trading
plans. And then, after we master all of
these facets of the game, we then invariably will have a few days of "I
was right about direction, how come I lost money?"
This weekend I was perplexed as to why I had a few long side
losses last week despite the trend in the S&P being very clearly
bullish. So I started to ask myself
why? What did I do differently? And the answer hit me like a freight
train. Last week I was trying to jump
the market early for a BREAKOUT to much greater highs, where as before I was
sitting back and JBTFD; just buying the freaking dip. Why is this important? Simply, the market can trend in two very
different ways. I call them the Grind
and the Explosion. The difference is
enormous and directly relates to trading strategy. Let's explore.
We, as traders, are analytical and intelligent people. We love numbers, charts, patterns, and correlations. We are thinkers, always trying to read into
the future of the market, predicting where prices are going, and figuring out
how to profit from these moves. While
these are great attributes to have, they can often be detrimental to a trader's
success. Hold on, you ask, how is the
act of thinking bad for trading. Its
called a trending market; or as I like to call it The Idiot's Tape. Simply, in a trending market, thinking too
much can be hazardous to a trader's financial health.