By Harlan Pyan
The following is an excerpt from this weekend’s premium report by All About Trends. Enjoy a free 15 day trial to their service and receive daily stock picks, market analysis, and a complete trading plan.
Samurai Traders Maxim: After Enlightenment Tighten Helmet Cords
So what exactly does that mean? Simple, after a period of time of great success human nature is to get more excited and more and more and of course complacent by being locked into a mindset that we are never going down and the markets are really strong so it’s buy buy buy without regard to how far we are getting ahead of ourselves. After all the average ANNUAL rate of return in the stock market is around 7%. We’ve put on a years’ worth of returns in two weeks!
I know it’s hard not to get emotional here but this is stock market psychology 101. It’s what happens emotionally to those who are not in control of their emotional state and are more of the fly by the seat of your pants type of person AFTER a vertical run where 80% of the run was completed in pre-market, that in itself is a bit scary.
This is what starts to happen when markets get that look of climax runs. Why do I say that? Look at the chart below of the daily NASDAQ comp. Look all the way back to December. See any other time we’ve gone as vertical as we just have throughout this whole run in this short of period of time?
See the smiley face? Just remember about the time EVERYONE is smiling that’s about the time the market turns. Can it go higher here? Sure but as far as I’m concerned it can do so without us (many individual charts show the same thing EXTENDED EXTENDED EXTENDED)
See those June 24 lows? Nobody was smiling there, everyone was scared of a full fledged break down. So what does that low have in common with this high? They are both zones of EMOTIONAL EXTREMES that’s what. At the lows it’s where Nervous Nellie caves in and sells, at the highs it’s where Greedy Guss jumps in and chases buses.
Look I’m all for having my head in the clouds and feeling good don’t get me wrong BUT for me I say it a bit different and that is?
“It’s ok to have your head in the clouds as long as (and this is the important part) your feet are firmly planted”
For me having my feet firmly planted is NOT CHASING BUSES. Which is another way of saying having your house built on rock and not sand because when the winds and rains come AND THEY WILL (a week from now just ask greedy Gus, or have we all already forgot about June’s swoon) if you are going a to chase bus from this moment forward you run the risk of your house being washed away because you built it upon an emotional extreme. Keep in mind the SPX is up 7.7% in about two weeks. At the current rate of acceleration IF it were to continue at this pace? We are looking at up another 7.7% over the next two weeks with one year from now the SPX being up 184% from here! How many of you HONESTLY BELIEVE that this current pace (remember the bulk of the moves were on ZERO volume compliments of gaps) we are seeing can continue at the pace its been moving. Personally, Im not one for getting in someone’s face but If you think that the current rate of acceleration is going to continue you are being a Greedy Gus here and are not sticking to your disipline. Part of having your feet firmly planted and your house built on ROCK is being disciplined, disciplined to not chase buses and get sucked into the hoopla we hear non stop about how great things are on TV sure they have been great but that is up to this moment in time subject to the next moment in time, after all isn’t the sun brightest at its peak? Look I am are all for going long but not here. Show me a pullback and I am fine with that. It would actually be healthy. That said let’s look at the whole trend off the June 24 lows that defines this trend. So where are us who have built our house on rock with our feet firmly planted looking to go long? At the intersection of blue and green if this digestion of gains is going to be a pullback variety. On a side note see the blue box consolidation? It was about a week long give or take, see the next consolidation? The one where it went sideways between 1645 and 1655? It lasted a few days, see the next consolidation? It was basically Friday or about one day. See the trend here too? Consolidations are getting smaller and smaller in time duration. What happens when it subdivides to zero consolidations? Ever see what happened in the movie Independence Day with Will Smith when the countdown clock went to ZERO? See those little pink lines? For early next week they are all you need to know, a downside break MAY get the ball rolling for a move to the intersection of the blue and green lines. Honestly it’s what you want to see even though it means the long side of the market feels some turbulence because? IF we keep going vertical here non stop for the next few days? Understand this you are probably going to be looking at a market that is going on a climax run which is the opposite of capitulation. We’ve all heard about overbought can stay over bought and get more overbought and guess what, we’ve seen us go from overbought to more overbought and now more more more overbought. The more we go like the last 5 days the bigger the drop we are going to have when it happens. Remember we’ve seen it time and time again where a week can wipe out a months worth of gains. Can you honestly say buying anything here is buying with your feet firmly planted. OR are you building your house on sand right here if you go long anything aside from special situations. A bit wordy, long and detailed? You bet BUT there is a wealth of knowledge here this weekend for you all — all in my quest to help YOU be the best YOU that you can be! Knowledge is power when used effectively and there is a lot of knowledge this weekend that deemed bringing it up.
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