THE MORNING AFTER

I have never been one to hide when things don't go right and I will not start now.

First I need to start with what I did right yesterday, a very short list comprised of one item. I was long the NAZ going into yesterdays NFP report. It was by far the strongest of the indexes and still is. When the bad report was released everything crashed pre us opening. However, once we opened here, the NAZ started to rally. At that point things were looking good, price was still above my entry point, a miracle. However, soon thereafter the rally started to stall. Originally my stop had been where indicated below the 3 day low. It was my judgement that from watching the across the board weakness, that the market was going to roll over, so I exited this at the market right at the same price I entered.

Always follow your rules, but know when not to follow them. This is an adage I always go by and rarely do I not follow them. However, I don't care how good of a captain I am, I am not going down with the ship no matter what the manual says. This was a good decision as we did go down to where my stop was originally sitting, so that order would have been hit had I just left it in there. As I have stated often in here, trading is a thinking persons business. You need to have discipline, but you also need to be nimble enough that you do not lose sight of the fact that you have to make decisions based on your experience. I have saved myself time and time again over the years by making judgement calls just like this.

Now lets look at where I made a bad decision.

I was short the Bond Market and things were looking very good until the report. I had my stop above the pivot high, a mistake. I should have had it just above the prior days high. We had 2 consecutive days closing below the prior days low in an uptrend. If we were going to break we should have just rolled over. I knew the report would be volatile, so I wanted the stop further away just so that I would not get whipsawed on a normal report. This was not a normal report. I was too greedy here and it cost me dearly. Learn from this as a reader of this blog. Do not be greedy it will eventually bite you.

There are a few other examples I could post, this was the worst trading week for me of the year, losing about 5%. It happens. The key is to try and contain the bad periods around this type of drawdown. If you can do that everything will be fine. Where does yesterdays selloff leave us in stocks?

For chart pattern folks, we do have a head and shoulders bottom possibly forming here right around the 200 Day Moving Average. If we get above Fridays high we are off and running by that logic. One thing that bothers me about a low being here, is the way the momenum oscillator has far out paced the price on the recent bounce. You can see the actual price got nowhere near where the prior peak was, yet the oscillator exceeded it by a wide margin. That is a short term bearish development. What could develop now though is a higher short term low on the right side of the chart.

We are at a critical juncture here in my view. If we do not hold here we could fall a long ways. This is the line in the sand. There are alot of cross currents going on now,  do not trade based on your view of the economy. There is not a direct correlation between stocks and the economy. Alot of markets look like the stock market right now, so chances are stocks will determine where alot of commodity markets go in the near term. I am still looking the get long the EURO and short the DX but those setups are on the verge of being gone. A little more dollar strength and those trades are off the table for now.