I’m going to categorize today as a mistake, even though I made money. Just look at the long side of the “30-day high” list I posted this morning. Salesforce.com Inc. (NYSE: CRM), OSI Pharmaceuticals, Inc. (Nasdaq: OSIP), Micron Technology Inc. (NYSE: MU), American Eagle Outfitters (Nasdaq: AEOS), and Wynn Resorts Ltd. (Nasdaq: WYNN) all offered substantial tradeable gains today. Maybe even more that I didn’t even notice. So I did great, right?
Right??
Wrong. I took one trade, on MU, for 1.6R. How did this happen? Should I go to a mirror and search for a lobotomy scar? No, it’s simple to explain:
Preconceived Notions
Moments after the markets opened, I “knew” how the day would play out. I was fooled yesterday, and I wasn’t going to let that happen again! No, I am too smart and savvy for that! We gapped up 100 Dow points, and, by gosh, by noon we were going to be falling back to 0. And I was going to be ready to short everything that looked even remotely weak. Soon, it would be time to buy a new Ferrari each week to match the TV Guide.
I can’t think of one time I’ve had a plan in my head for the overall market direction, and went on to do well. I know better than to do that! I guess I forgot, today.
But, it underscores an area of my trading I need to work on, which is, how to tell when the markets have changed direction. I watch the TICKs, but they fluctuate pretty wildly. I glance at the QQQQ charts occasionally, but they dip every now and then, just like any other stock. The question is, how to tell when a dip is a dip, and when a dip is the start of a market turn. If I had a handle on that, i would always trade with the current market, and always change my bias when the market does.
No matter what, sitting on the sidelines on a day like today, waiting to short things, is cleary not the right move.
Anyway, the Trade
Courtesy of StockTickr’s new pro feature, here is my one trade today (click to enlarge):
You can see, I got out at a local top, which I was pretty happy with. It would be a little while before it made higher highs again. When you consider that I was expecting the markets to turn within an hour, you can see why I thought this was the perfect trade at the time. I gave up lots of gains trying not to relive yesterday’s downturn.
| Stocks Mentioned In This Article | |
|---|---|
| Stock | Links |
| CRM |  |  |  |
| OSIP | | | |
| MU | | | |
| AEOS | | | |
| WYNN | | | |
September 21st, 2006 at 4:12 pm
IMO, there is no risk-proof and certainly no foolproof method of differentiating between “a dip is a dip”, and when “a dip is the start of a market turn”. I typically use the bpcompq (with a 10/20d EMA) and the ndxA50r to gauge nasdaq market sentiment, but these are not available in real-time.