YEAH Baby! Market breaks out, oil bottoms, I catch a falling hammer
How about that! S&P solidly crosses 1326 (finally). The Qs have 40 in the rear-view mirror. Sweeet!! Check out The Market Today:
Yesterday afternoon, as I was working on the Krebs Cycle-looking chart for my currency rant, I noticed the oil stocks all showing some serious intraday reversals. Some had gapped down and reversed into the gap. Some had just flipped. But they all headed up like gangbusters after oil came back above $60/barrel. This type of intraday action results in a hammer on the daily chart, and virtually all the oil stocks made one. The OIH didn’t quite form a textbook hammer, but the action was the same:
I scrolled thru a few of the ones I regularly follow, looking for a more volatile one to get long on. I was going back and forth between UPL and JOYG, and finally settled on JOYG. It formed a near- Dummy Spot, and I had a bit of an itchy trigger finger, so I got long with a smaller than normal position size, and set my initial stop below the day’s low.
Now, the normal way to play this trade would be to wait for the next day’s break of the hammer bottom. That happend emphatically this morning:
However, since I saw the hammer clearly forming, and there was no danger of a re-reversal, I went ahead and got in a little early. This is a bit more risky, hence the smaller position size. This time, it worked out nicely.
This is a trade which will require a tight trailing stop. Why? If this is just a pullback into a downtrend(I don’t think it is), it’ll fail within a few days. If it’s the end of the preceding downtrend, this will be the first bottom, in which case it may run a little more, but will come back (any Fibonnaci fans out there?). If that happens, I’ll let this trade get stopped, then get long on a resumption of the new uptrend, with an appropriate stop and position size.
I would be remiss if I didn’t mention my recent nemesis Apple Computer:
I was watching for a break of 76 as a point to get long and set a tight stop. Always a tight stop. Instead it gapped up and ran. Can’t chase it, stop would be too wide. Ah, well, I’ll revisit AAPL soon enough. And for the record, I’ve decided my wishful short of Apple was a break of Rule 8. Breaking our own rules is a bitch, no?