Expecting The Markets To Pull Back In An Orderly Fashion

by Olivier on March 10, 2010

Another pretty uneventful day. As of yet the markets still look very strong. The S&P 500 is trading very close to its January high as opposed to the Nasdaq 100 that is already printing new highs for the year. It looks like the markets need a breather here. I would expect an orderly consolidation. A huge sell-off seems very unlikely as the vast majority of stocks still display rather bullish chart patterns. Then the S&P 500 should be able to march higher and print new highs for the year. Time to closely watch how specific stocks digest a possible correction. Strong stocks typically don’t hurt traders. That is, they don’t trap them and pain during a correction should be minimal.

A quick update on my portfolio positions. All the corresponding charts are available on my Public List:

  • MMR – McMoRan Exploration: Bullish consolidation above the 18.00 USD$ level. I still expect that one to provide a great move to the upside any day now. I expect a gap up on good news. Time will tell.
  • GMO – General Moly: My original plan was to wait for a consolidation pattern instead of ‘jumping right in’. I obviously changed my mind and initiated a position. I am somewhat surprised the advance of the long white candle was almost completely retraced. Then again I see solid support around the 3.50 level which I consider makes my entry more of a ‘buy at support’ as opposed to ‘jumping right in’. Overall the pattern is extremely bullish and if the stock can manage to close in the 3.60 – 3.70 range those who shorted the stock will most likely have to cover their positions. A close around 3.90 and we are probably off to the races.
  • YUII – Yuhe International: Excellent looking bullish ascending triangle. Not much more one could ask for.
  • SPU – SkyPeople Fruit Juice: Trading behaviour is somewhat erratic to say the least. The overall pattern looks very bullish though. Extremely tight free float. Less than 4 million shares that is. If someone decides to enter a position with size, the ‘sky’s the limit’ as a part of the company name implies. I suggest holding a small position, putting in a stop loss and not be too concerned about the daily noise.
  • MRZ.V – Mirasol Resources: The stock’s potential is absolutely compelling. Right now the momentum is somehow lost. But volume is drying up and I don’t see anything I would consider extreme selling pressure. Price is king though and I’d like to see a move to the upside materializing pretty soon.
  • MXI.V – Merrex Gold: The stock has outstanding potential. Almost all West African Gold Mining Stocks I watch are doing pretty well. But MXI.V has turned out to be a losing trade. The only thing one can do is to cut one’s losses short. This trade will serve as a great reminder to put more emphasis on being disciplined going forward. My plan is to exit any trade once a predefined maximum percentage loss is reached. The percentage will depend on the stock and its pattern. I have applied this rule to my overall portfolio in the past. A draw down of 30% is the ultimate signal to go to cash and take a break. It is a clear sign something is wrong and things need to be reassessed. For single stocks the maximum loss should be less than 30%. In any case, a loss greater than 30% should be avoided at all cost. This goes to show traders have to be willing to constantly improve, adapt and apply necessary changes in order to improve their performance.

People who pride themselves on their “complexity” and deride others for being “simplistic” should realize that the truth is often not very complicated. What gets complex is evading the truth. – Thomas Sowell

Buenas noches.

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