The big move I said was likely coming soon from last night’s Broadcast is underway, although I must honestly say I’m disappointed in how it arrived. I went home with a little long-sided exposure last night, so I was unable to catch the huge downside gap that greeted us this morning. The short side has offered some follow-up opportunity since the open, but most of the move took place overnight and I simply didn’t catch it the way I had hoped.
Traders at this point often wonder, “what now?” The convergence of trend lines on the S&P (and others) is being resolved to the downside with today’s selloff, and it’s easy to think you can just short everything in sight and ride it down. I’d caution not to take such a careless approach.
Yes, we have seen no buying at all today, and yes this is a technical sell signal for the market. However, the dip-buyers have emerged numerous times in recent weeks to step in and offer some support. They might stay away for today, but it’s unlikely given the success they’ve had since July 1st that they’ll walk away without a fight. That could keep things tricky for the shorts, so be careful out there on both sides of this tape.
Here’s a glance at the S&P 500 chart and today’s trend line break:
In other news…
I was reminded today of the importance of waiting for entries to trigger. The Hit List had one potential trade (ARUN) yesterday which never triggered, and another today with RDC not triggering. (Both of those will be removed tonight after not triggering and seeing their patterns fail, by the way.)
My style is to wait for my trigger prices to be met before taking an entry, which does a couple of things for me. First, it confirms that the stock is on the move as price clears an important level. That adds confidence to the play, and reassures me that my thesis is (at least temporarily) correct. Second, it prevents me from making anticipatory entries where my capital is tied up in a stock that may still be consolidating. I want my capital at risk when there’s an expected reward, not a 5-day waiting period.
Traders who took entries in those names either yesterday or today are underwater, and that’s an excellent reminder to wait patiently for signals to fire before taking entries. Remember, we’re trading for profits, not excitement. If you find yourself chasing the latter, you’re barking up the wrong tree here.
One final reminder today’s action offers is that it’s important to ring the register on nice winners while the profits are there. We’re here to trade the market, not discover the next big thing for the coming decade. That means we exit when we know we’re wrong – quickly – and, we take some off the table when we’re right.
The move in SOHU was excellent – over 10% in 3 days from Thursday’s trigger last week to Monday’s ramp higher. I love when that happens. And I’m long gone from the trade at this point. I happened across it today, and in case you haven’t noticed, it gave back that entire move and then some. Those who were greedy and hoping the unsustainable strength would continue, even just a little longer, are now confused and frustrated.
Here’s a glance at the huge run and reversal in SOHU:
So here’s the deal… Commit to staying disciplined and patient. Wait patiently for good setups to arrive, and wait for them to trigger before going in. Have the discipline to shun greed when it knocks on your door, and make those gains real when you have a nice winner. Methodically book profits in good trades, and keep on moving. This market requires it.
very good advice jeff. i have a sign in my office which just says “PATIENCE”.
thanks for the good work.
That’s a great sign, and it applies to so many things – trading especially! If I can be impatient with losses, but patient with everything else (winning trades, waiting for setups, etc.), I figure I’ll be alright. And anytime I go off discussing patience, I’m reminding myself as much as I’m reminding the traders here.
I appreciate your comments Jim, and hope your Friday is a great one!