Trouble Ahead, Trouble Behind?

  • Posted by
  • on March 1st, 2011

My reason for interpreting price action is not to find some magical pattern that leads to sure profits…it’s to find out where the bodies are buried.  Where is the big volume?  Is it below (bullish) or above (bearish)?  Is it yet to be seen(continuation), or has this part of the trend attracted a crowd(reversal)?  People with human emotions, just like me, can be compelled to act on them and usually leave their territory marked.  Market technicians are just hunting for instances of widespread doubt and belief, regret and relief, etc.

How are we feeling today?  Personally, I regret not buying more on the dip, I regret selling anything on Friday; I’m sure I subconsciously acted on that minor regret by buying again on Monday even though the 2-5 day trade window discussed Thursday was getting old.  I also now doubt the market can slice through last Tuesday’s opening highs…the trade is essentially ending.  If too many of us doubt that Tuesday’s key level around 133.86 on $SPY can be broken, it probably won’t.  If too many of us turn it into a belief that 133.86 can’t be broken and short against it, the ingredients will be there to fool us all with a rally.

I don’t mean to talk in circles, this is just the reality…there are a million operators battling each day, each of us with different time frames and motivations.  When a significant % of those time frames and motivations intersect we have an opportunity…to make a huge mistake, or seize a victory.  NO ONE regrets buying late last week.  I’m not sure who even bought the prior week, so regret for those purchases seems limited to individual breaks like $NFLX.  So the battling forces for today are a feeling of underexposure to the Thursday PM-Tuesday AM rally and the feeling of overexposure for those picking bottoms last Tuesday and Wednesday.

Take that battle, insert the “jumped the shark” belief that Day 1 of a new month is a money machine, and the ingredients are there for a morning rally that runs into trouble once those 3 psychological forces work their way through the collective today.  I believe in month end/beginning strength, just not that it needs to be so perfect as to occur on Day 1.  It’s our job as traders to anticipate the collective psychology, react as it begins to take hold, and move on once that idea is widely accepted.  Now it’s time to leave this battle, and wait for the next outbreak that leaves the herd trapped in emotion.

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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