“Never Drink From the Pool”


Within my “67 Rules For Trading Success” there are several rules that begin with the word “Never”. Rule #28 “Never Drink From the Pool” is an absolute commandment; because nothing can make for a more sick feeling than taking someone’s advice only to see it backfire and cost you big money. Be it my advice or any other gurus prognostications; always listen with discerning ears and then rely on your own charts to make your own decisions.

This coming week might bring out an extra heavy dose of prolific calls from both sides of the market. “The market is going to breakout; it’s going to the moon”; and then the next you’ll hear “it’s time to sell” and that a crash is just around the corner. This week more-so than most will probably cause the “experts” to make some pretty extreme calls and I’m afraid that if you hear something that halfway makes sense you might just decide to drink from the pool and end up shifting your positions with the ebbing tide only to get quickly washed out to sea in the process. Just be warned.

Whenever I hold a position in the market; I want it to be either out of favor or off the radar of most traders. So when I find popular stocks like GOOG or NFLX in the middle of their respected ranges I mostly shy away from getting into the chop where I will more often than not get chopped up. I’d rather miss the inevitable move up or down to concentrate instead on the extreme levels where absolute support or resistance can more easily be found and relied upon for sustainable moves.

Now when I see an individual stock breakout within the confines of a strong underlying market I often join in the feeding frenzy and ride the momentum like other smart traders; but I don’t think we’re in that optimal situation right now. Instead; I think the “head spinning is just beginning” as I described in last week’s short article “If Your Head’s Spinning They’re Winning” that fairly accurately predicted last week’s sell-off and rally.

From studying my charts based on last weeks moves; I’m still in a defensive posture and don’t think we’re going higher than we’ve already been this year. I’m 90% looking for shorts; especially where others are getting excited for another run higher. I see a nice setup in both the QQQ and the SPY where a stair-step of 2nd and 3rd resistance tests are poised to be unleashed against much weaker support; the same weak support that saved the market on that dip last Thursday.

Understanding technicals better than most leads me to view the last six month’s rally as an exhaustive run that has deleted the market’s support and built numerous resistance levels that normally foretell an overall pullback. Of course I could be wrong and the market could find good footing from weak support; because I have seen it happen once or twice before; so you need to study your charts to confirm my findings before you make a trade based on a dip in my pool.

But until the market breaks out to new highs; I’m very cautious here. That snap back rally on Thursday and Friday had the classic signs of low volume short covering. Something necessary just prior to any major move down. So please be aware because if and when we do turn lower it will most likely be fast and furious; signified by multiple gaps down that will leave the traders who just covered their shorts in the dust.

Now all-and-all we still may see a bit more upside in the markets before we get any serious reversal and we may get a rather choppy trade this week. As well a few stocks will probably be-dazzle you to the point where you might even start anticipating others to mimic their gains; but I think it’s all for show to draw in some late-longs and also meant to unhinge weak-shorts from the market.

AMZN may continue to make a run to near $290 fast; PCLN may hit $835 as well and etc; you get the picture; I just wouldn’t get too caught up in the hype if this occurs because I don’t see these moves as breakouts; more a prerequisite to a breakdown; or at least another good pullback into a better base to go long from for many individual stocks.

I’m carefully watching the movement here on Monday; because this week should confirm or reject my thinking. If we hesitate and start gaping back and forth with a negative high-low result; I’m ready to turn even more bearish in a hurry. If we keep moving higher; I’ll relax some of my fears and maybe change my short stance to a large degree. But to be VERY clear; I think we are in the process of making a long-term top that won’t be easy to trade without tight charts.

Having said all of this; there are some weeks where you need to “look before you leap” and this may be one in particular to heed that advice.

Stocks to Watch

QQQ looks like it will hit a wall @ $73.95 or $74.15 on Monday or Tuesday; but a gap up over these levels takes it to $75.02. Whatever you do please don’t short the averages on or near the end of the day or on any negative open; also if the QQQ makes it over $75.02 file this article in the trash as I will.

SPY may have trouble @ $165.56 or $166.44 or $166.70. I’m watching individual stocks within the 500 to give me a better idea of where a top might occur; you may want to do the same.

EBAY may be through with this side and buck the market here to the upside; it’s worth a shot long @ $50.20.

BLK has recovered $20 from it’s low on Thursday; but I’m not buying this rally; it needs another dip back to near $260 before I go long on a denial rally that might push it to see some light above the BB.

LNKD frustrated my efforts to go long last week by $1. I’m still thinking that it needs more work and I’m now waiting for it back down near $155; but like Bob Marley I may be waiting in vain; we’ll see soon enough.

BIDU is off the mat and has some more room to the upside without absolute resistance; but a 1st test convergence @ $105.65 may pummel it back down to under $90; tough call you may want to make on Monday or Tuesday.

GS has been definitely ripping some shorts while defying the market with good stamina. This is a good reason to “Hit’em Where They’re Not”. GS looks like its poised for a breakout; but $167.80 is a trouble spot standing right in it’s way; watch this level for a spike down that might finally stick.

NFLX is stuck in the middle and honestly I see it going either way; just know that it can go as low as $197 before real support picks it up; or it an go to $260 before real resistance breaks it down; flip a coin and you may be a winner; but I do have a negative bias if it comforts you in the least.

REGN may have trouble near $264.15 and may retrace it’s steps back down to near $220 if some strategic gaps develop in its chart. This is a stock that could definitely bite you back; so watch your step either way; but a risky trade from within the BB could payoff big-time. You make the call.

AAPL is at an important point here. It’s chart has a gap in it from 1/23/13 that may throw many traders for a loop and I don’t want to be one of them. Before you buy AAPL you need to answer these two questions in the positive (1) have traders given up on the stock (2) if AAPL goes back to $600 will it hurt the most the most. I’m tempted here to take a bite if it dips down to near $430 one more time; but the chart has a couple of strange anomalies that makes me want to stay a spectator. Two things have me leaning more towards a long play (1) a longtime holder of AAPL told me last week that he sold his large holding on that last run near $450 and (2) the repeated mention of ridiculous chart patterns like the dreaded “Death Cross” on ST. I’m watching here and will probably take a shot for AAPL to run against the market in any downdraft. Here it only makes sense if it doesn’t; but good luck with whatever you do.

Monday may prove to give us a positive to neutral open. If we get a negative gap down; I think I’m well positioned as well to profit and I’ll get more excited about a market top; but still I’d wait for a positive move above Friday’s close before adding to any short position. A market like this requires that you sell the pops and buy the drops at Critical areas of support and resistance. Don’t deviate from this strategy based on other peoples “pools of wisdom” and you’ll do well.

Thanks for the ideas on the conference; I don’t really like the ST format; reason for my crude website; there must be a better way.

As always – study more than you trade and you will succeed – good luck – PTP –

 

 

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