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Friday, June 04, 2010
After the futures got wiped out by the Non Farm Report this morning, I guess we will see if this little rally off the lows is for real. If it is this selloff should attract some buying at some point today. If not maybe it will just roll back over again. I really have no idea, but I do have a plan of action. My stop is placed where indicated on the screen, and the plan is now to do nothing. It will be hit or it will not, pretty simple. If it is not and we hold here, there might be more upside to go here. If you step back and think about it, there should be no reason for a rally after a report like that, which was pretty negative. However, as we have seen time and time again, markets have a mind of their own, so you cannot always predict what they will do in reaction to reports.
Sometimes they swing big one way then reverse. Other times they just are a one way street. There is no way to know which will occur. All you can do is have a plan and follow it. The guesswork is just not for me any more. In my early days I constantly tried to do that, and was never able to build any consistency at all, so I do not even bother now.
The other part of my plan today was two fold. First, if we started rallying after a decline, I developed a list of stocks to buy. Second, I am going to look to short the DX if it breaks yesterdays low. The EURO long which is the inverse of that just has too big of a stop for my taste. This is a long shot, but again you just never know what will happen. If that were to happen in the DX after going up and making a new high for the year, it could signal a near term top. I cannot predict what will happen, but I can predict what I will do when certain things do happen.
Here is the DX chart displaying what could be a trap breakout if it were to reverse. It may just keep going in which case I will not short it. I do not enter at the market. I always enter on stops below current prices for shorts and above them for longs. This way I have short term momentum going in my direction upon entry. I would love to be good enough to just enter at the market, but I have yet to figure out a good way of doing that which provides consistent results.
The EURO just looks the opposite of this, having made a new low for the year today. This is also a trade for Monday if it does not trigger today. I love the quick reversals of breakouts. They do not always happen, but large moves occur when they do.
Time to sit back, watch, and execute the plan for better or worse.