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Traders, Stay on Target


Regardless of just how bad you think the economy is or will be, or on the other hand, how good you believe it to be, resolve to remain open-minded and flexible...


Gauging the financial markets are always a daunting task. However, many can simplify this process by concentrating solely on the action in front of them, rather than forming a grandiose thesis.

Unfortunately, while it may be one of the most helpful guidelines to follow, there is no question it is one of the hardest. The financial markets don't care about our personal opinions nor do they give a hoot about what we feel should be happening next.

The markets are always painting a picture and I have found them to be one of the most honest forms of information around. Many traders could immediately start improving their results if they would resolve themselves to simply remain open-minded and flexible at all times and during all situations, rather than distract themselves with forming a grand thesis.

The problem for most traders, however, is they let their thesis override the action taking place and end up fighting the prevailing trend. I have been in this position on numerous occasions and the hardest thing to do is to admit your fault and correct your positioning before the damage becomes too great.

During a major market move, whether up or down, it is easy to fall into the grand thesis trap. It was only a few short weeks ago the media was awash in just how good things were in the world with such buzz words as liquidity and globalization gracing our headlines. Markets were touching new highs and all was right with the world. Many subscribed to this thesis and were caught off-guard when the environment quickly changed and selling kicked in. Now, a few short weeks later, the headlines are different, the mood has changed and once again it would be very easy to fall into a grand thesis trap, resolving that the markets will never again be able to regain their footing as they are destined to go down the toilet due to an incredible credit-crunch.

While either side can be debated at length, the key for the individual to remember is that by staying open minded and remaining flexible, you will be prepared to participate regardless of what takes place. I always chuckle at the look I receive when someone who knows I trade stocks for a living asks me where the markets are headed and I reply in a very honest manner, "I have no idea, but I'll play it either way."

Charts speak volumes, but at this point it is still too early to tell if the recent bounce we saw in the major averages yesterday, will gain traction or not. An individual who has been sitting on the sidelines waiting the action out will always underperform when a market starts to rebound such as we saw yesterday, however the key is to remain patient waiting for underlying conformation in the individual chart formations before taking action. The last thing a trader wants to do is commit too early, which may result in compounded losses and damaged confidence.

Should yesterday's bounce be the start of something more, I would expect to see buy formations setting up within underlying charts, offering prudent entries and re-establishing proper trends. A quick glance through many charts will show a correlating one day advance, however what I desire to see is a constructive move from here in the form of some basing or a light volume to digest the day's gains.

This would give me a good indication the market may be headed higher after a brief pause in order to reset itself and form a small base. Until then; however, we must remain patient and see what happens next.

Regardless of just how bad you think the economy is or will be, or on the other hand, how good you believe it to be, resolve to remain open-minded and flexible, being prepared to play the action in the market rather than the thesis you have developed. If Monday's bounce was the start of something more, charts will set up and I will play them, however if not I will continue to sit idle, waiting it out and preserving capital.

Futures are pointing toward a lower opening, which is not a bad thing at all and helps to keep Monday's excitement contained. All eyes will be on the Fed today at 2PM ET and after the bell the focus will shift to Cisco (CSCO) earnings, which will definitely set the tone for the technology market, at least in the short term.

The bounce we saw Monday was refreshing, however we have a long way to go before we repair the damage that has been done. Allow the charts to be your guide and move slowly, putting fresh capital to work.

No positions in stocks mentioned.

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