February 10th, 2014
by Jeff Pierce, Zentrader
So now that the wild gyrations of last week are a thing of the past I want to recap how I played this volatility and what I plan to do over the next few trading sessions and a few observation I've made.
Social networks can be just as bad as the major media outlets when the proverbial crap hits the fan. I saw so many bears come out of their caves last week projecting catastrophic downside levels and the media was so quick to use terms like crash and 1929 parallels. This is just utter nonsense. Crashes or major moves lower just do not happen when you have a strong uptrend like this on the Nasdaq. I for one was glad to see this move lower as it gave me a chance to buy some companies at a discount and also place a few quick trades for profits. My biggest mistake was not to take all the opportunities that my trading system flagged as buying opportunities. There were a few days last week where I had alert after alert going off and I had to pass on some of my buy levels because I was already so invested.
Now that we've bounced off the lows what can we expect next? I will be watching 2 things with one of them being if new leaders begin to emerge. We still are in the midst of earnings season so we should be seeing new breakouts on earning's catalyst and that just isn't the case so far. The other is in regards to my market timing signal. If my timing signal remains bearish and we make a lower high then that will be a very ominous signal. I trimmed many longs on Friday because just as it's important to be calm when the markets are selling off it pays to not get caught in the bullish optimism that accompanies euphoric rallies. My market timing signal turned bearish on Jan 27th for the Nasdaq and the other 2 markets I cover (DJIA & TSX) are also bearish so now is a time to be quick to take profits and observe what the market is telling us.
We have basically rallied back to the price where the Nasdaq was when my timing signal turned bearish. With a 1.69% rally on the Nasdaq it would make sense to expect some profit taking. If the pullback is calm and finds support then lets see if it can bust through the 4125 level and potentially challenge 2014 highs. I'm cautiously optimistic that we can rally and take out previous highs based on one hypothesis.
Before this bull can officially die, it needs to die is stupendous fashion sucking in every last lemming out there. Right now traders are far too cautious and have one foot in the bear camp.