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The Qs acted pretty well today (considering that I’m short):

They opened down, formed an OGRe (opening gap reversal), and climbed higher by the close. This formed what’s known as a Thrusting Bearish candle formation. It should indicate a lack of buying conviction, which should result in further selling which should make the shorts (including me) more money.

However (and there always seems to be a damned however doesn’t there?), focusing on this just because it’s what I want to see, and ignoring any conflicting signals could be detrimental to my Pork Rinds and Beer Fund. And there were certainly some conflicting signals today:

• First, the Qs themselves. Itself. Whatever. Note what happened the last time they had some selling action then formed a Thrusting Bearish candle:

  

  Next day was a monster “up,” followed by a serious rally.

• Next, note that although a big stock like GOOG also made a bearish formation, a bigger stock in MSFT made a bullish hammer. And then there’s Cisco. The masochists who’ve read this site for a while may remember that I made a big deal when Cisco broke out back on August 9 and none of the talking heads on TV even mentioned it. Cisco proceeded to lead the market into the bull rally we’ve seen since then.

  Look at what CSCO did today:

  

  For you home gamers, that’s a massive Bullish Engulfing candle (I think that one’s pretty self-explanatory). Not only that, but it’s a huge move on a huge stock. Nearly five percent on a 164 billion dollar company in one day!. About 8 billion bucks gained. That’s a sh*tload of capital. We’d be fools to ignore it.

So, cut and run on the short trade? Of course not! I’m just extra-cautious looking at that CSCO action, and not bragging at the water cooler just yet. Here’s where the CSCO event has its effect: on my stop management. Although the swing short is still perfectly intact and behaving, I’m gonna be more aggressive with my stop due to the Cisco factor. Let’s look over my options:

• [I should note that I’m talking about a short entry below 44.25 with an initial stop above the 11/24 high of 44.86 for a total initial risk (tah-dah! “R“) of (44.87-44.25) 62 cents.]

• First, there’s the Dave Landry method- leave your friggin’ stop alone! Close half the position and move the stop to breakeven when/if it reaches “2R,” or 43.01. It hasn’t yet, so do nothing.

• Next, there’s my “you’re only in it for a minute” stop method, which is to set the stop at the high of the prior bar for shorts. That would put my stop for tomorrow at today’s high of 43.84. (Guess what would happen then)

• Finally, there’s my patented DummySpots 20% trailing stop method. Take the previous stop (44.86). Take today’s “lower low” (43.34). Calculate the difference (1.52). Move the previous stop by 20% of that difference (~0.30). 44.86 - 0.30 = 44.56.

With this trade, I’m committed to being a little less aggressive with my stops, and giving the trade some breathing room. So #2 is out.

If CSCO follows through (upward) and the rest of the market goes with it, my stop will get hit wherever it is. If the market continues to fail, there’s no way the Qs will go all the way back up to 44.86 and then fall. Something below that is more reasonable. So #1 is out.

Ok Goldilocks, #2 is too hard and #1 is too soft, is #3 just right? Well, almost. I see from the chart that the high of the break day (yesterday) was 44.61, very close to my calulated #3 stop. So I’ll exercise a little executive privilege and put my stop where it’ll include both of those prices: at 44.62.

Ok, I need a beer.