What is that picture?

There are many things a trader can do wrong in the markets. Still, there are a few things a trader can do right. All the market acumen in the world is useless for a trader who ignores his own rules, or who changes systems as often as he changes socks. Yet, many of these folk seek a better system, a holy grail in their trading.

The battle in the market is not just bulls vs. bears, it's educated (about trading and the market) vs. non-educated money. Richard Pryor used to tell a story of a tourist coming upon a lion in the bush. The lion is laying down lazily watching the tourist. Camera in hand, the tourist diligently snaps pic after pic, encroaching on the lion's space. The lion raises his head just a tad to get a better look and says, "That's right, come on... yea, that's it... and bring your camera too."

It isn't your system, or any system, that brings success. It's the discipline and understanding of trader behavior within the trading environment. This is specifically why I continually point out the difference between investing, where price is the driver, and trading, where behavior is the driver.

If you're unsure of which way you're involved in the markets, you've got to stop, back up and review everything... your motivation, your goals, your approach, your "system," and your attitude.

No one likes it when I say you have to "not care"-- that you must be detached from your trade. Bringing human emotional baggage into a trade will make you sell/buy at precisely the wrong time.

The discussion above is why you see the following on my site, www.wallstwise.com, "everything you need to trade is on this site, but you will still need a coach to sort it all out." Why? Because trading is about behavior, attitude, knowledge, timing, and other esoteric skills, it just is not enough to have a "feeling about that one."

Moving right along:

Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names. Markets also tend to return to the mean over time. The quality of Wednesday's rally was not as strong as the quality of Tuesday's decline. It came on lower volume and narrower participation. This suggests that no matter what path stock prices choose over the short-run, stocks are topping.

Based on the empty data calendar and a light earnings calendar, Friday looks to be a quiet session. Nonetheless, the dollar action certainly will be the focus.
•Geithner Push for Trade-Gap Targets Is Opposed Before G-20 Meeting Starts

We are all focused on the dollar because it has been the primary driver of this market. Knowing that, what will you do when the dollar stabilizes and the dollar is no longer the reliable driver? Knowing how to play in a stable market environment would be a good skill, wouldn't you say? Or do you just like taking pictures with your camera?

3 Bears Left and Counting.

Neither the Fed minutes, rising interest rates, or anything else is going to stop the bulls from SPX 1,200 and INDU 11,000. Some gurus are suggesting even 1225 on SPX is not out of the question. I don’t chase price, but I do setup for reversals. It’s all a matter of following the herding instinct or going down that path less traveled… and right now that path is cluttered with overgrowth since there are probably only 3 bears left on the planet.

The Dow may be 31 points away from 11,000, but it is also 3,225 points away from its all-time high. No one can deny that the Dow, indeed all the indices, have made a hell of a run off the lows of March 2009, but be real, there is also no denying that there is still a long, long way to go before one we can feel good about crossing these round number thresholds.

Day trading the long side is one thing, positioning for extended long swings is something else… for that I need a correction. At these heights going long means smaller size no matter what I see in the charts. Look at volume on the SPY today, half what it’s been the last 3 months. Where’s the conviction of bullishness? It’s there, but only for a few… so far.

Every major index has developed a rising wedge pattern and nearing a channel line which are the next patterns it has to destroy… spx, dji, iwm, spy, below is the SPX example:

Tomorrow before the open FDO, GBX, MON, and MSM are scheduled to report. Watch closely how these stocks react to the announcements, especially MON, for clues as to how the market will handle earnings starting next week with AA. If they sell off on reasonably good reports then they were overpriced to begin with.

Trading After The Jobs Report

One year ago today, March 6th, 2009, if you were in the market or just a casual observer you would have been convinced the end of Western civilization(?) was at hand. The stock market had been in an aggressive accelerating downward spiral and by March 6th value in the S&P500 had been cut by ~57%. And it did it in frightening high record setting single day drops as the credit markets froze up.

Buying into those drops on the way to Mar. 6, 2009, specifically during the period between Sep 29 and Mar 6, was as deadly as shorting into the rallies since. The relentless rally started on March 6th and has rallied ~67% with only one ~8% correction.

I mentioned at the beginning of last week that I sensed a paradigm shift in sentiment mainly due to ever improving price action and improving, but spotty, economic reports. These favorable reports were topped off by Friday’s jobs report and rally.

All of a sudden, as shown by the drop in the VIX in recent weeks, the bullish reading in the $TRIN, the bulls have made their move. Things are so bullish… that they’re now bearish technically speaking. We’ll have to wait and see if the fundamentals really have improved and only time will tell us that story.

The market always overreacts up or down, always overplays its hand, and always reverses when least expected. The bullish readings are so high that the trade has to be a short play but (there’s always an infuriating ’but’) we can squeeze higher still… 1150 SPX looks like a target but it’s too obvious.

My best bearish scenario would be a small push higher on Monday that fades quickly and, more importantly, a pullback across all sectors with a sharp pullback. Developments in Europe and Asia over the weekend will influence Monday’s trade as usual. If the market really wants to show bullishness it will have to correct (headline unknown at this point) and bounce back sharply. Any correction in this environment will be short lived and that’s okay with me as long as it’s sharp… say down to SPX 1109 which would make price sit right on the Feb low uptrend line. Probably more realistically for any pullback next week would be to target closing the gaps down to 1116… roughly a ~2% pullback and certainly not a correction.

A correction is meant to shakeout the excess usually by violating a trend line… a pullback still maintains it’s uptrend. My last comment of the day on Friday in Trader 2010 on Finviz was, “Lack of volume throughout the last 5 days will take it’s toll on today’s rally.”

Jobs Report and how to trade the stock market

Here comes the job report and of course the market will react to the headline accordingly. However, the headline number of an additional 824,000 jobs that we will see is already built into prices. That headline came out earlier in the week... (if I could find the article I'd include here but can't find it just now). With today’s report, the government will also issue revisions to payroll figures going back to 2005. The annual benchmark update, which aligns the data with corporate tax records and covers the period from April 2008 to March 2009, will also be announced. The Labor Department estimated in October that payrolls for the 12 months would be cut by 824,000. In any event due to yesterday's drop and depending on the real report underlying numbers, not this revisions number,

Wall Street economists expect the January report will show a tiny increase of 5,000 jobs. That would be only the second monthly gain since the recession began. But it probably wouldn't be enough to hold down the unemployment rate, which is forecast to rise to 10.1 percent. We've seen institutional money getting out ot the market starting last week and continuing this week. After the initial plunge this morning and unless there is another accompanying heretofore unknown negative headline we will get a rally presumably based on the real January report as mentioned above to be a gain of a few jobs.

Just guessing here but a move to 1050-1046 as I suggested yesterday to Trader 2010 participants should be here at the open... I suppose it could get worse to a low of 1030. But since that headline 824,000 number will bring in lots of new short side players, (this is the cruelty of the market) and considering the plunge all week long by institutional sellers I'm looking for a sharp rally back to at least our opening price if not to yesterday's close of 1061. These are the days hedge funds live for in that they helped drive prices down and will now take advantage of the new sheep coming into the market and buy this market.

Stock Market Headlines Have Change... for the worse.

Headlines drive the market from day to day. Here's one the market is probably pricing in these days...Some Bailout Goals Still Unmet. You saw the reaction in banks last week, although not attributable to this report. With all due respect to dentists, most of us would rather spend an hour in a dentist chair without Novocain than read a report about what the government is doing with our money, but here's the new quarterly report from the Inspector General of TARP... http://www.sigtarp.gov/reports.shtml. (Click on the January 30, 2010 Quarterly Report). Bottom line: "...even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car," and, I might add, with bigger then ever "too big to fail" banks.

Now I don't pretend to understand every aspect and nuance and ramification of the details of this report... I know it's not good overall. Why is that important? Because if the market heads into a freefall, or grinds downward, it will give me confidence to hold a bearish trade even if the market tries to rally from time to time.

Of course if the news is incredibly bullish that same is true... witness the market reaction from the March 2009 lows as headlines changed from doom and gloom to "green shoots."

And that's what's important in staying abreast of things. You want to determine the impact that any news can have on the market so when the market takes its queue from a similar headline you'll know that it's more than a just a one day move... the market is probably going to go in that direction, up or down, based on the impact the news has overall. This generally does not come out of the blue. Its headlines like this day after day that takes it toll, recently against the bulls, and should serve to be one variable that gives you confidence in a trade.

Significant headlines matter, it's that simple. Which ones are the critical stories to follow? Easy... watch the reaction in the market. If it's significant enough, that's the trend until a equally significant offsetting headline/story is powerful enough to reverse trend. Stocks and industries do not move or trend in a vacuum... they move according to perception of the impact of news on future earnings. Write that down.

Traders learn very early in training that a trend is in place until it is broken. We saw last week that the March to January uptrend line was finally broken, really broken.

The Beat Goes On... Yours.

Obama Administration Steers Lucrative No-Bid Contract for Afghan Work to Dem Donor
The administration is laughable if not just outright more corrupt than anything we've seen in the past.

Providing Acorn doesn't beat up voters at the polls in the upcoming elections, maybe, just maybe we can get these yuckapucks out of here.

I did it, but no I didn't really do it.

Interesting story here (http://hosted.ap.org/dynamic/stories/U/US_NY_GOVERNORS_SON?SITE=FLTAM&SECTION=US) on Gov. Paterson's son in New York. The youth in question was playing dice but "not for money," says the father.

Sort of like Clinton smoking dope but not inhaling... what are these people absolute idiots... as in I snorted coke but didn't let it go up my nose. Or I robbed a bank but didn't take the money. Or I had sex with that woman but didn't use my penis?

Napolitano Safe ... again!! She is a perfect idiot! Just perfect!

Here's the headline: TSA Tightens Security for International Travel

... and so you were asking yourself, "wait, weren't they DOING THIS ALREADY?"

NO! Well, you go Janet Naplitano.... you go, girl!

Too Big to Fail, or Are We That Stupid?