PUNCH DRUNK

Well the old adage of all the bad trades look stupid afterwards certainly applies here. Keep in mind that I just trade patterns, not opinions. As a result, all trades are really the same. The patterns are different from trade to trade. However, I don't trade with alot of discretion so I usually don't feel dumb after a bad trade like this one was. This week has been mixed, I have made a couple of bad trades and a few good ones, so a net gain, but not a great week overall.

Let's talk a little about a bigger picture view of this market, and all the indexes. I harp ad nauseum about the PPT. We know they exist, and we also can see they are making no effort to disguise what they are doing anymore. In reality this is really irrelevant. We cannot do a thing about it, and we do know they are baised in one direction so anything they do will move the markets higher. It really is a known edge. It tells us that during any pullbacks that we get no matter how small they might be, buying is the correct play.

It is hard to buy into a 2% decline after an 80% upward move, I have to admit. The strongest trends are the ones that have very small pullbacks and they just don't give us great chances to enter. For those who might be long term holders, I do not envy you here. This is a very difficult call to make if you have sat this one out all the way up to here, and are now contemplating what to do. If it were me in that position, I would sit on my hands here. Chasing something like this inevitably results in you buying the exact high. There are significant downside possibilities here that could trigger at any moment just based on all of the political things that are going on. If the horse happens to get out of the barn away from the PPT, this could meltdown incredibly fast. However, there is always the possibility in any trade of it moving against your desired direction, so you really have to tune that out.

You have to have a plan for how you approach trading and investing. This helps when we get into a dilemma like this. For me I don't care because I make my money going in and out for 3 to 10 day periods for the most part. I know my plan and it's limitations. For those who have a longer term horizon you have to separate news from your decisions. You need to buy on extreme weakness. If for some reason you exited when we went down under 7k in the DOW you need to have a plan of when to get back in. I would say in general the plan needs to be identifying a point when a retracement of a trend becomes a trend change. Obviously that happened quite some time ago now, so this is not a place to make your re-entry. DO NOT make it based on your view of whether Barry and his minions are commies or not. They appear to be but that has nothing to do with the stock market. I think most people have seen that proven out now.

I will be the first to admit that my longer term view has been incorrect. When we intially began the rally in March of 2009 I thought it was a retracment trade. As it carried along I still thought it was. I realized really about 3 months too late that it was more than that. However, I still thought the 1235 area would provide a ceiling for this. That might still be the case, nobody knows. Since there is such a heavy confluence in that area with so many different approaches that are used, I do expect us to have a moment of truth there. If we blow through those areas that next stop is new all time highs in the markets. My gut is that is what is going to happen. That gut is not based on anything technical that I use. I just feel now that we have defied the odds as well as many other forces for so long, that there is no way to stop this. It is yet another bubble that is being inflated. We all know that nobody does bubbles better than the former United States.

There does remain the possibility that with all the world wide crises going on, that money could flee from other places and start chasing our stock market. We have been lacking volume which proves this has not yet happened. If it does that could provide significant fuel. This is impossible to quantify.

So, if the .618 retracement area does not produce a reversal in this market, one is not coming. I cannot offer any advice to long term holders other than to watch that area and see if we stop there. If we don't you will have no choice but to get back in. It will be a terrible re-entry point if you exited at the lows. I never told anyone to exit there, but I will admit I did tell people I thought we were ultimately going under 6k before the final low was made. That is not going to happen now. I was wrong about that. I did also tell someone that when he got out at a different place than I had suggested, that he needed to be prepared for the period where he was going to feel like he had made a mistake. That time is now. I was unduly influenced by COT data in making that low call. I did tell another person who asked me about getting out that if he did decided to do that, he had to make sure he had a plan to get back in if he was wrong. He never got out I think mostly because he did not know how he was going to get back in.

For me it is very easy to just get back in once I see I was wrong in exiting something, as per my post above. This is just born out of experience. I cannot afford to get too hung up in what has already happened. If a setup for an entry is legitimate I keep chasing it until it is not. If it proves to be wrong I reverse.

Since I showed the losing trade above, here is the winning trade I made which made alot more profit than I lost in the dumb NAZ short.

I am not going to be doing much more shorting until I see something else that might indicate we are reversing. There is nothing jumping out at me here, other than the re-entry today if we were to move back down which is highly unlikely. This NAZ trade was just a losing trade and the setup is gone now barring a late drop today.