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A while ago, I noted magicJack in TraderMike’s links. It’s a product that looks so very promising. Skype that a “regular” person could use. Y’know, the majority of people we more geekly types tend to forget; the ones who can’t comprehend that computers are anything other than email and MySpace boxes. And that don’t see a discrepancy in their beliefs that they have a “right” to drive an SUV and a “right” to $1.50 gas at the same time. Yeah, vote for your politician, he/she will protect you from your own accountability.

Anyway, I bookmarked magicJack’s website, which announced “coming in April ‘07″. Well, dude, today is April 30th. Have we been jacked by magicJack?

Remember, none of these indicators predicts the future! They only help you to see when probability is likely to be on your side, and your trading skill and money management do the rest. A stochastics reading of 90 means nothing if a stock has just broken out of a range.

That’s me, from 2005, and repeated in the sticky page up in the navigation bar I called Dummy Wisdom.

See, I know the rules. We all do, except for the neophytes. That’s not the problem. The problem is in the execution. Remembering to follow those rules. And I still fall off the wagon every time I turn around.

The S&P had the big selloff, then bottomed, then rose on decreasing volume. Then it started throwing off topping candles. This chart is the best example I’ve ever seen of why we need to wait for confirmation of what appears to be a bearish topping formation:

The dojis and hanging men have cried “Wolf!” over and over, only to be cancelled by another up-thrust. And the whole time everyone and their brother has oscillators showing overbought.

Anecdotally at least, it seems to me that the only times I remember everything getting pegged against the redline for this long (where so many shorts and longs get stopped from the excessive extension) are when we’ve been at the first thrust of a major trend, usually in the opposite direction of the preceeding one. I plan to do some “real” research on this in the near future and see if it holds water, or if it’s just wishful thinking brought on by the nostalgia hidden behind the cobwebs in the attic of my mind.

I’m off to Six Flags with my girlz. Ya’ll have a good weekend.

Red Alert: Today the SPYders formed a Bearish Doji Star:

Tomorrow’s action will tell whether that becomes a full-fledged Bearish Evening Doji Star or not. This formation is one of the strongest “reversal formations” you’ll see. How would I trade it?

• On a gap-down opening tomorrow, I’d look for any intraday setup to get short for a daytrade potentially turning into a swing trade by the close. A gap down, rise to today’s low, and failure would be perfect, which means it’s unlikely.

• On an opening within today’s range, I’d view it as a short-term swing, waiting for the break of today’s bottom of 146.65 for an entry, with a stop at the entry bar’s high.

• On a gap-UP opening, I might get short on an OGRe, but with a reduced position size. A gap up would indicate residual buying pressure, negating the Evening Star’s signal.

GOOG Pullback After Double Top

With all the 100% positive press Google gets, you’d never suspect that it was pulling back into a big ‘ole double top:

Note the volume pattern on that last upswing. Their earnings “news” Thursday had better be gangbusters, else we may see just how deep (and cold) that water is…

Don’t Forget Options Expiry!

Options Expiry is this Friday. That usually means a great excuse to take a 4-day weekend, as everything gets pinned in a range. However, you may want to have a laptop nearby as you grill and drink. Never know when we’ll have another Black Swan options expiry day like January 20, 2006 (if you click it, read on down- it gets more interesting towards the bottom). The current setup is ripe to be clobbered by a “precipitating event”; be prepared in case we get one.

A quick reminder before I head to the (ICK!) regular job for another day of fun: as I said in the post last night, the dollar is threatening a major breakdown against the euro. Enter “currencies” in the search box up top to see some of my previous rants if you want some background.

This morning the dollar is bouncing around at 1.354-1.355 per euro. The major, huge, mondo critical level to watch is 1.3666. (That’s easy to remember, just think “one-thirty plus the devil”).

If the dollar breaks, commodities will soar. I’m especially talking about gold and oil here. And it won’t be the oil getting more expensive; it’ll be the dollar getting cheaper. Don’t forget that either can happen, and the result is the same - more dollars to buy a barrel.

Off to work. Ya’ll kick some butt today.

This morning at about 6AM, my head was full of ideas. Articles, essays, witticisms. Now here I am 14 hours later, and all I can think about is a steak, a glass of warm red wine, a little reading, and a good night’s sleep. Unfortunately I’m still in the live to trade camp, vs. the trade to live one, and I get too tired from my profession to pursue my passion. It sucks.

However, we’re at that place, with the S&P above its February Highs and the NDX threatening. So I’ve got to at least throw out some thoughts.

UNO

Clearly scenario one from my 08 April post has not materialized. So that one’s a shift-Delete.

DOS

Now we’re staring scenario two in the eyeballs. Remember, a failure from this breakout will spell a swift and steep decline. Be prepared. This will call for a rapid reversal by longs, or rapid adds or just high-fives all around by shorts.

TRES

‘Course, there still lurks scenario three, where we all end up long. My short stop is at 148.50 on the SPYders. (The second baseman is “WHAT”, BTW). I won’t like getting long, with the dollar only one cent from a historical breakdown against the Euro, but if the chart raises its shirt and flashes an uptrend, well, how can we refuse?

Food For Thought: SPY, VIX, and Fibs

Here’s a chart of the SPYders, with the volume emphasized, including a 10-day moving average of the volume. Note the volume trend, even with today’s “breakout”:

Now here’s a chart of the VIX, with a 10-day SMA also. Chances are you weren’t with me back when I wrote about the VIX Fade Trade. It’s still a valid concept to keep in mind:

And for the veddy intevesting picture? Let’s look at the VIX overlayed on the volume of the SPY:

Like a hand in a glove, and both showing that the current short-term trend shouldn’t be trusted at this point. In other words, if we’re looking to go long, best to wait for scenario three above, where we get a thrust on higher volume and a nice “take me now baby” pullback.

Finally, one you Fibonacci Retracement fans should note, and one you Fibonacci critics should note even more notably:

The old Golden Ratio, with no other technical analysis, provided a perfect support point to go long after the selloff. Fibs aren’t magical- nothing is. But you’d be doing yourself a favor to keep them in your toolbox with your other technical studies.

Cheers. Let’s make some money.

1. Find a subject you care about.
2. Do not ramble, though.
3. Keep it simple.
4. Have the guts to cut.
5. Sound like yourself.
6. Say what you mean to say.
7. Pity the readers.

* quoted in Science Fictionisms (1995), compiled by William Rotsler

I just got the email today that StrategyDesk v1.2 is available. I haven’t downloaded it and played with it yet, but the email itself looks promising. Here are some tidbits that (coincidentally, serendipitously or otherwise) seem to directly address some of the complaints that have been raised in posts and comments on DummySpots:

• DummySpots: …if you develop software of any kind (or hardware, or pretzels for that matter), when you release a new, improved version, for the sake of Judas Priest TELL US WHAT THE FREAKING IMPROVEMENTS ARE!!!

  AMTD email:“What’s new in this version?” [list follows]

• DummySpots: …As of v1.0, SD doesn’t support different directories (”folders”) for groups of formulas- they’re all under the Formula Library list, which can get unwieldy really quickly as you save all your tweaks.

  AMTD email: “Expanded formula and strategy libraries, where you can also set up and organize your own folders for formulas and strategies you created.”

• DummySpots: (in this article I described how to download and create your own StrategyDesk symbol list for the Nasdaq Comp and other indices that inexplicably were not included with the program)

  AMTD email: “New symbol lists: Russell 1000, NASDAQ, NYSE and AMEX.”

• Dummyspots: …this StrategyDesk program has potential, although it’s very much like receiving a big grill with five hundred parts and no assembly instructions.

  And here: …How can I RTFM if you won’t WRITE me a decent F’ing Manual?

  And here: …So far, the most infuriating thing I’ve found about this software (including how damned slow it is) is the fact that those three stupid PDFs are all the documentation AMTD has ANYWHERE so far.

  And here: This list is a “work in progress,” and will continue to evolve until/unless Ameritrade finally publishes a decent formula reference themselves.

  And today’s AMTD email?
  “And coming soon: The StrategyDesk Help Center - your all-in-one source for support documents, webcasts, and dynamic tools to help you get the most out of StrategyDesk - which will be accessible from the Help menu at the top of the tool.”

Well, it’s nice to see they’re getting the message from their users, and are listening and trying to improve the software. I’ll probably never know for sure, but if any of those ideas came from the discussions (or the cursing) here, then it’s been well worth it. And rest assured, we’ll continue to discuss, and to curse.

This morning, QQQQ, SPY and a host of individual stocks opened with what at first appeared to be a prime opportunity to go short, but which rapidly turned into a chance to make a high-percentage long trade. The cue to change directions came from one of our favorite old friends: the OGRe, or Opening Gap Reversal.

In my post yesterday, I talked about the plethora of short setups showing. So what went wrong? Nothing! Setups are not magic crystal balls which always tell us where the market (or an individual stock) is going. They simply help us to judge the probability of a move and (hopefully) give us an edge over pure chance. How we use that probability and whether we make or lose money has everything to do with our Trading Plan (entries/exits, stops, position sizing, etc), not with being “right” all the time.

If you are looking for a way to be right all the time, you should not be trading! Trading is about discipline and money management, and it is entirely possible to make money while being “right” only 30% of the time. It’s also possible to lose money while being “right” 70% of the time.

Good Setups Gone Bad

Good setups can be very powerful. But paradoxically, an even stronger signal often comes from a good setup that fails.

What we got today were failed short setups all around. It’s not that the setups weren’t there. Even Oscar and his OMNI (which is correct so much you’d think he must have drinks with Mr. Dow and Mr. Jones every evening) were pointing down.

What I think happened today is that looking to go short was a little too obvious. There is an old rule that The Market likes to make its moves with as few people on board as possible. On a day like today, the very best way for The Market to shake off the most barnacles (traders) is the old Michael Jordan Head Fake, aka the OGRe.

OGRes are powerful because they catch so many people looking the other way. It can seem counterintuitive at first, but if we learn to watch for them, we can take advantage of these high-probability morning patterns.

Here’s a diagram of what an OGRe looks like on a daily chart:

There’s not a special Japanese Candlestick name for an OGRe, although many notable and powerful candles can start out as OGRes, candles such as the bullish piercing, bullish and bearish engulfing, dark cloud cover and the squirrel on a transformer. Ok, I made that last one up.

Today’s OGRe Example, Brought To You By QQQQ

Many, many individual stocks had similar formations today, so let’s just look at Big Daddy:

The chart never showed a short entry. It gapped down and then ran down farther. Be careful not to be taken in by the panic to get short on a gap-down opening like today. Patience, grasshoppa. Wait for an entry, then when it happens take it and set your initial stop.

At 1005, the QQQQ pierced into the Opening Gap, at which point we’d start watching for the first pullback to get long. That pullback happened immediately, and on the 1020 bars’ break of the 1015 bar’s high, we had a spot for an entry into a beautiful daytrade.

Here’s what today’s OGRe looked like on a daily chart:

This bullish piercing candle, which began with the OGRe this morning, may provide an entry for a short-term long entry tomorrow. I say short-term because I don’t believe this rally. Only a confirmed break of the February highs will convince me.

And, lest I be remiss, I must show my dear AAPL:

That, my friends, is a picture-perfect hammer, the break of whose top will provide a great jump-in point for yet another short-term long trade. Alas, not for me. I am sworn, or doomed, to make my money from Apple on the short side.

That’s all for now, ya’ll. I gotta get to bed.