Charting Charlie Sees His Shadow

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  • on March 10th, 2011

So the compression of energy from consecutive inside days results in an overnight gap through yesterday’s lows.  Game over, breakdown ahead right?  In the words of Lee Corso, “Not so fast, my friend.”  Even the remaining non-chartists knew the past couple of weeks was coming to a head.  And we will get a nasty open today, maybe even a nasty trend day down.  From what I see, this simply takes upside resolution off the table and keeps us firmly in the blender until the end of Q1 a few weeks away.

If there’s anything we’ve learned in the last 2 years, it’s “Don’t Chase!”  The May 6 Flash Crash was a day the chasers could win…other than that, it’s rarely made sense to blindly follow a widely known technical break.  Let me know when the WSJ posts their first article on ascending triangles, and we can put it in the scrapbook with the Hindenburg and head and shoulders.  Technical analysis does a great job, in my opinion, of revealing the structure of the market and psychology of its players.  It predicts nothing, and it’s up to us to remain fluid with the unfolding move rather than stare back at a pattern.

I have some trading longs($XLV,$VMED,$CPX,$TPX,$ING) and some trading shorts($XLK,$COG).  I expect to sell some longs today as pending breakouts seem likely to fail.  But I’ll take the shorts off as well, leaving me not more short but just less exposed.  As much as we felt the energy building for a break, I don’t see a threat to the rising long-term bounce back to the 2007 highs.  There is a whole universe of underinvested folks lurking beneath the market…they may not show up today with a fistful of cash, but they’ll be there at the turn of the month and during earnings season.

Know your timeframe, honor your stops, and stay open to new information.  Just as March 9, 2009 was not the only day to join the bull, today is not the day to jump on the bear case.  Stay light and loose, test the waters with small trades, and when those trades start working beyond 1 day we’ll know something more sustainable is at hand.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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