11/8/2006 6:47:33 PM
The Sky is Falling, the Sky is Falling...
I don't want to be ignored like Chicken Little was when he repeatedly warned the barnyard animals of an event that never occurred. His warnings fell on deaf ears because they had heard it all before. We certainly didn’t get the evening star confirmation I warned about.
I had suggested we were seeing a stealth rally in the weekly Fundamental Trader and we saw the market explode upward on Monday, and the underlying bullish tone is sweeping all before it. I have had a nagging doubt about this uptrend, which is sabotaging our trading. I saw the evening stars and I decided it would be best for subscribers to eliminate the risk, but we missed the current move.
I have a confession to make to all of you. My system calls for me to step aside when certain strong reversal trades don't work out when a trend has been established. You have to go with the trend. If I had followed my system, we would all have profited significantly from this extended uptrend. Of course, this is the hardest thing to do, when the system was built to take advantage of reversals, and you essentially just have to sit there in a long position and twiddle your thumbs.
I am not going to spend a lot of time beating myself up or worrying about the trades we could have been in. My job is to select opportunities, balanced against risk, to allow my subscribers to make money. That is what we are going to do from here on out.
I will likely make one long recommendation per week until the current trend is broken. The longer it goes on, the more profits we can make. Once the trend is broken, we will once again trade the reversals.
At this time, the QQQQs closed within thirty cents of their intraday high this year. The Dow and the S&P-500 continue to advance. At this time, 400-500 hedge funds have gone bust this year, out of around 8,000. I expect many of them were dedicated short funds, as well as the commodity traders, such as Amaranth. They were, however, primarily technical analysts, who didn't have a provision in their system for runaway bull markets, which is what we have been seeing.
The sixty-minute charts showed bearish candles, such as Doji stars followed by long red candles or the hanging man, etc. That indicates a lack of confidence in the advance seen today. The CBOE Index Put/Call ratio is 1.0. It has been at the level or lower, less than a handful of times since the market bottomed in Spring 2003.
What does that mean to us? Maybe the markets will move to the downside tomorrow morning. Sometimes when the Put/Call ratio is abnormally low, it indicates a local top within a few days. Personally, I am getting tired of betting against the trend as there is nothing more frustrating than to think about buy and hold investors sitting comfortably making money while we are either not in a trade or short the market.
I will consider exiting our SPY position tomorrow morning, depending on the market action. I am also going to look for a long trade entry to recommend as well.
Please feel free to send emails with any questions you may have.
Regards and Good Trading,