“To trade successfully, think like a fundamentalist; trade like a technician. Never, under any circumstance add to a losing position! Take your losses quickly and don’t brood about them.” –Wisdom on Trading
Last Week, the U.S. market had attempted to bounce from Monday low to resistance levels, but it ended up with a bearish reversal on Thursday followed by a big sell-off on Option Expiration Friday, the volume spiking on all major indexes. The S&P 500 and the Dow both closed slightly under their 50-day moving averages. The Nasdaq was undercut below its 100-day line. The market tone is negative, considering how it was able to rally regardless of both good and bad economic or earning news previously.
Yes, this time it seems different!
The big sell-off was also spurred by the poor price reaction to lousy earning reports or guidance from many key companies including CMG, AXP, GOOG, IBM, INTC, MSFT, ALGN, MLNX, FTNT, CHKP, MCD, etc. When so many leaders we watch closely are so damaged technically with big sell-offs, it would take some time to recover.
GOOG wiped out weeks of gain in just two days from its very disappointing earning report released a few hours earlier on Thursday. The SELL point near 760 I highlighted on my chart two weeks ago was retested briefly before it got dumped hard. AAPL, the darling of Wall Street, has been selling off for a month from $700 area. Now it got sold off hard by breaking down its bear flag I mentioned on its chart, volume very heavy. Will AAPL selloff be priced in enough for an oversold bounce? I think it all depends on how far it would fall. It is now well below 100-day line at $610.
I remember what Dan Zanger told us in his seminars: All stocks are bad unless they make your money. They are only trading vehicles, and never believe in your stocks. Unfortunately, I constantly see some traders trying to catch falling knives and to find reasons to be right.
But the stock market is the only Mr. Right. Prudent speculators never argue with the tape.
We should expect that the correction would happen a couple of times a year, so this time could be the second one since June: the oscillator is not oversold yet; it doesn’t feel the selling has reached an extreme level for the broad market; dip buyers are still seen everywhere.
In fact, I was impressed by a few traders on Twitter, despite having disagreement over my reversal calls on Wednesday, who were able to switch their bias when the reality presented. Some silent traders did well, too when they focused on trading instead of tweeting too much during trading sessions.
One of reasons that many of us love trading is: In front of the market, the chance of making money is equal to everyone since there are no personal issues involved.
The best way to deal with current market is being open-minded and flexible, switch positions when the market tells us to do so and keep stops tight; trade with fewer shares when things are not sure. For option traders: play house money with partial winning chips.
Thanks for viewing and best luck on trading!
Here are some charts with my notes to share: