DummySpots.com

First, a couple of notes-

Remember how we saw yesterday that Google had broken above its sideways range of the last few weeks? Guess what happened:

Better than a mustard, egg and jelly sandwich! Also made for a beautiful daytrade setup:

That 1045 EST 15-minute bar is SO close to being a pure Dummy Spot. Its low is one penny below the previous one, so by a strict definition, it’s not a DS. It’s still plenty close to take a trade off of, though, with the low volume and resumption of upward action.

Now on to business. Please check in on the current CSCO (Cisco Systems) trade-following post. Going well.

As for The Market Today: Very positive action in everything, everywhere. Feeling giddy? Not so fast there, lightnin’.

Remember that 40 is a major level for the Qs. Support that broke, then resistance that held. Now we’re up against it again. Right up against it. Ever heard this old rule:

Yeah, times like this we don’t want to hear that. But it’s a cliche’ for a reason. If you’re long the Qs, congrats. Now watch your stops and be prepared for some turbulence.

The run in the overall market has stretched the proverbial rubber band pretty tight to the upside. Run some oscillators if you like, stochastics or what-not, they’ll all show overbought. To which I’d say… DUH.

I like the VIX. I wrote last Spring about the “VIX Fade Trade” where traders watch for a reversal anytime the VIX gets more than 10% away from its 10-day moving average. Here’s a chart from today:

Now, stockcharts shows the 10MA as 12.60. Ameritrade’s Advanced Analyzer shows it as 12.50. I “did the math,” and I got 12.704. Go figure. Anyway, today’s close of 11.18 is more than 10% below the 10MA no matter how you slice it.

What’s that mean? Everybody’s feeling too warm and fuzzy. I know I am. Aren’t you? Had an extra glass of wine at dinner tonight to celebrate your good fortune and brilliant trading acumen? Yeah, me too, but just between you and me, make it a cold beer.

So don’t try to anticipate and randomly jump out of the plane. Never anticipate. That’s one of my rules, although I’ve not published it at this point. Anyway, just make sure you’ve trailed your stops to exactly where you’re comfortable being taken out, and expect some action.

P.S. If you like to live on the ragged edge, remember options expiry is day after tomorrow. Tomorrow is a prime day for a pullback to normalize the run for the last few days and ensure the inside guys the biggest gain on your expiring contracts in both directions.

Many successful individual traders trade very little or none that last 2-3 days of expiry week. It’s usually boring as hell. But when it does move, it can make you sing and puke all in the same day. Anyone remember last January’s expiry??