Where is the throw back?

1120 has come and gone. We are now in the 1140s flirting with 1150. The technicals have shifted to the bullish side. This baby is just not pulling back. Let's look at the 3 year weekly chart.



Note several very important events this past week.

1. We broke out above the 50% retracement level
2. After a retest of the top down channel line, we have drifted up and away
3. The RSI is no longer diverging from price
4. There is no longer a topping pattern to speak of

Unfortunately, I have to say that there is more room for this to run. From the looks of it, we could see 1230 and then a test of 1300.

The 1230 level represents the 62% retrace of the full decline, and 1300 represents the last reaction high before the Lehman bankruptcy. This pattern is a very familiar one - at all levels. In fact, looking at this graph and pretending it was a 5 minute graph, you would expect a couple of long bar pushes to rush resistance at 1200-1230 followed by some weakening bars into the top at 1300 validating exhaustion. This is also the location of the 200p MA - reasonable spot to turn back. That is the short play - and I think it is as close as five to six weeks out.

I can not sit on this heavy short index position until then. Though I am confident that we will see a correction - and perhaps another major leg down - we are talking about 100-150 S&P points. That is just too much and I will be seeking a throwback to lighten up. I have the March options and I have the ES trades to scalp and catch throw backs from reaction highs.

Here are some interesting quotes from every traders favorite book:

"suckers differ amongst themselves according to the degree of experience"

This stuck with me and I often think, how much of a sucker am I. We all are - even the best of us - but how do I rate. All I can say is that when I take a position that moves against me, against my technical expectations, the longer I take to fix the problem the more of a novice I feel. A smart man exits with minimized losses and works to earn it back.

"Men who can both be right and sit tight are uncommon"

At first you might say that his quote is an argument for me to sit tight on my short positions. It is not. This quote refers to traders (like myself) who act too quickly when they are IN THE MONEY to take profits. The best traders are able to stick to their analysis and play the setup to the end. In many cases, there is no end per se. Once you take a position, you should keep it until the larger trend has ended. Currently, the trend is up and I am holding a short line for the ride - hmmm, not good.

"I do not allow my possessions - or my prepossessions either - to do any thinking for me."

In other words, I am short a substantial line on the SPY, DIA, QQQQ. This line in and of itself is not a good reason to be bearish.

One of my favorites:

"It is naturally the semi-sucker who is always quoting the famous trading aphorisms and the various rules of the game."

Over the years, I have learned that either you got it - or you don't. You ain't gonna find it in somebody else's wisdom and though experience is super important, very few of us have the bankroll for a thorough education. These last 6 months make me wonder if I got it or not. But then I recall this final quote:

"Without faith in his own judgement no man can go very far in this game."

The market can not beat you - you can only beat yourself.