Trader Mike

“Nobody makes money in a true bear market, not even the bears”
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The action this week got me thinking that I need to write a Duru-like missive on shorting. But since I don’t have a Ph.D you’ll just have to suffer through the following rant which I’ll try to keep relatively short. Yesterday Howard Lindzon wrote:

One thing I have always preached on the blog, less so on Twitter, where I bang out more trading ideas and market thoughts is that shorting stocks is hard. I think it’s harder than any aspect of learning the market. It’s dangerous. Let this …

Michelle B submits: In the film, The Object of Beauty, when the hearing-impaired hotel maid was asked why she stole the valuable, small Henry Moore sculpture from one of the hotel’s rooms, she replied that it spoke to her. The pattern VCLK set up this past Thursday spoke just as eloquently to me, and I suppose you could say I stole a trade.

After the close on Wednesday, November 1, I noticed VCLK on the high scan and placed it on my chart pages, and then retired for the night shortly after—the market closes at 10 P.M. my time. During premarket the following morning, I did my basic research on it: reason for …

The market had a very strong day on Friday which put the indices close to important resistance levels. The S&P 500 is right at the top of its almost year-long downtrend channel while the Dow and Nasdaq are approaching their 200-day moving averages. Right now the Nasdaq futures are indicating an open right on the 200 DMA (damn those technical traders!), so I’d be real careful about trying to initiate longs here. Here are charts of the Naz and and S&P:

The CANSLIM Investing Blog has a post today discussing overhead resistance and why you’d want to buy as a stock just as it’s breaking out to new all-time highs. Another reason I’ll add to the list is the potential for a short squeeze. Once a stock makes a new all-time high, not only are there no more ‘natural’ sellers (people who were long but were sitting on a loss and want to sell to beak even) but now everybody that’s short the stock is losing money and will have to buy to get out of their positions. That kind of panic buying can make for some incredible gains.

I love how the market sets itself up for these ‘big bad events’. You can just see the anticipation, and now hesitation, over tomorrow’s jobs report. The NASDAQ has rallied from deeply oversold territory right smack into several levels/types of resistance. It’s now perched just below the top of its downtrend channel, just under 2000, and the downward sloping 50-day moving average looms just a bit higher. Add to that yesterday’s hanging man as well as what looks to me like a deliberation pattern and overbought stochastic. All of that tells me that the NASDAQ is a screaming short under yesterday’s low. Of course the report tomorrow …

One of the most important rules from William Eng’s book, Trading Rules, is that ‘bear markets have no supports & bull markets have no resistance.’ The second part of that is very evident right now, especially on the NASDAQ. It looked like the market might have been starting a multi-day pullback last week. The S&P 500 and Dow had completed evening star-ish patterns on Friday. But most of that was negated today by the S&P rallying to take out the resistance of that pattern. The Dow is now sitting just under last week’s resistance. The NASDAQ continued to just obliterate any facsimile of resistance in it’s way. The only not-so-positive thing …

Today reminded me of one of William Eng’s trading rules: Bear markets have no supports and bull markets have no resistance. The market sliced through the mid-May’s overhead resistance as if it wasn’t even there. In doing so, the head & shoulder pattern that I pointed out Friday was invalidated. Led by the NASDAQ, with a 3% gain, all the indices notched new highs for this 2,003 rally. This was definitely not a good day to be short. (ouch!)