Lessons

1. If VIX is under 26, buy the dip. If VIX is over 26, sell the rip.

2. Always trade in the direction of the larger trend. Find the strongest trend in your time period.

3. Nothing as bearish as a failed breakout. Nothing as bullish as a failed break down.

4. Don't worry about the last dollar. Take your money and go to the beach!

5. No more than four positions at a time. Preferably 2-4. Scope out others. Pick the strongest.

6. Buy the strongest; sell (short) the weakest.

7. Nothing is guaranteed. Nothing.

Friday, July 29, 2011

Big Picture

1. Breath is weak, and has been getting weaker, as happens before the end of a bull market. The NYA closed below the 200 day and will have resistance above now. The RUT closed barely above. The NYA and other indices have large H&S patterns. The $BSE has a target of at least 16,000 (IMO). And Gold as been on a tear. Also, short-term, we are now entering the down phase of the moon cycle. New moon is here; we are headed for a full moon. This indicates further bearishness to come.

However, before a bull market ends, sentiment is usually very positive. We haven't had very positive sentiment since March or April. Of course it's possible that we are already in Wave 3 of the bear market, and March/April was a top.

However,

2. A few indicators indicate that we made a short-term bottom today (or will do so Monday/Tuesday). These are divergences on 5 MA and 10 MA of advancing stocks on the NYSE and on New Highs (positive divergence in New highs but not yet in New lows. The Russell printed a hammer.

3. A few other indicators (VXW:VIX) also indicate a bottom, perhaps an even longer term bottom.

4. At this point, I plan to go long on Monday or Tuesday. I will be careful with longs. Whether we are in a bull market or not, I think we get a bounce here or Monday. After the bounce, I will likely check out and consider going short.

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