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Posts Tagged ‘gap and trap’

fallen from graceland

fallen from graceland

Has Elvis left the building?

The market plunge continues to frustrate bulls and bears alike.

Extra-ordinary bounces like yesterday are meant to do one thing: squeeze shorts and hope they go away.

The egregious run-up over night is a great example of mis-direction. It stops out the shorts position trades, and then it entices buyers to be looking the wrong way and buy pullbacks as the car is falling off the cliff.

Smart shorts NEVER short too low, accept stop outs, and if unwilling to ride the elevator up courtesy of the PPT and rumors about bailouts, at least wait until the apex is hit and then use the signal bar technique to say “take a shot here”.

Trying to buy pullbacks long all morning was suicidal. Today’s double bottom bounce that had bulls cheering for 1200 and 1210 at the close was wishful thinking.

They were still reading from yesterday’s playbook. A new page was inserted, and only the most gullible of newbies believed that script.

Sometimes we need a hound dog to sniff out the truth, sometimes just a little common sense.

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Well, what an interesting day. Overnight globex ramp up, then gap up at the open taking out last week’ s high.

Clear sailing, right?

Wrong. Another misdirection trade catching traders buying the pullbacks all day long. Momentum didn’t begin in earnest until the lunch breakdown.

Overight actiivity is always suspect since volume is low and price can be easily manipulated.

In a book I am reading, a theory of war was being discussed. CI (Commander’s Intent) theory was suggested, as “No plan survives contact with the enemy”. I instinctively knew what the author meant. Planning is important, but then we must react in the heat of battle, just as skilled athletes need to perform under pressure.

As a technical trader, the “why” doesn’t concern me. Stops are stops, targets are targets.

The range for the past three weeks seems to lie within the big yellow box.

Many breakouts are false; seeing the bigger picture allows us to take reasonable trades where resistance may give us better odds for a reversal.

There are many good traders out there like Bernie Mitchell; make sure you check them out and get an education from someone willing to mentor you.

It’s too costly in this business to learn from only your own mistakes. 

 

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 Eisenheim : Everything you have seen here has been an illusion.

Nothing is what it seems.

Monday’s misdirection play was a thing of beauty; even the great Eisenheim would have been applauding.

Traders were so busy looking through their rear view mirrors at the premarket high that they forgot to look at the cliff they were driving off.

After Friday’s low broke, the bull’s had their heads held under water until they were finally let up for air late in the day. Intraday shorts scrambled to capture profits before the closing bell after kissing last week’s low.

All eyes are on that uptrendline on the daily chart.

 

Eisenheim Day

Eisenheim Day

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Gap up, trap early shorts, consolidate, squeeze them. Consolidate, pull back as profit taking, keep pulling back squeezing the longs.

The numbers change, but the patterns are familiar. A news report like the CPI is an excuse to move the market, and hapless traders get stopped out several times on the short side. Finally giving in and chasing it looking for the trend day, they get their clocks cleaned in the other direction.

Double trouble.

Keeping track of gaps and knowing your potential targets helps to guess what they have in mind. No guarantee, of course, but an edge.

By carefully studying ballistic theory we can look for clues that suggests the likelihood of reversals or continuation at these important areas. Chart patterns like doji bars, evening stars, and tails are all confirmation that the current trend is about to end.

Experience is really the best teacher in spotting reality at these often confusing market support and resistance levels.

 

 

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