BUTT KICKING

I couldn't think of a better title for today's activity. Actually that is the censored title. If you trade long enough, you will sometimes get days like today. Yesterday looked like we were certain to get a market decline. It even looked that way at the market open....but then things reversed. I'd love to blame it on market manipulators or the High Frequency Traders (HFT's), but sometimes you get beat in the market and you just have to take it like a man. I hate it when people blame the refs for their favorite sports team's loss, or give other lame excuses when things don't work out in their favor. I got beat in the market today....mostly on the FAZ. When the news out of Europe hit this morning, the financials stocks started to rally hard. When stocks are that oversold, it creates a snowball effect as thousands of short sellers start covering their positions. That action creates an even bigger move up which in turn causes more people to cover their short positions. I'd like to blame the entire rally today on short covering, but some of the volume numbers were high enough to believe that there was some true buying going on.

I was stopped out of my FAZ position. I didn't get stopped out of TZA, but I came really close. The big question that is on everyone's mind is what is going to happen next? Before I get into my opinion on that, I need to again emphasize the importance of money and trade management. I was down about 11% in one account and about 13% in another. Those are pretty big one day losses...but they didn't wipe me out. Despite my confidence last night that we were going to move lower, I didn't violate my money management plan. This would have prevented me from making tons more money had I been right...but it also prevented me from wiping out my account if I was wrong. I've learned over the years that the market can always throw you a curve...especially when you think you can't miss. Remember something that I've told you in your money management classes. If you are overly upset with your loss (or losses), you probably risked too much on that trade (or those trades). We are never going to like having a loss, but there is a difference between being mildly irritated and uncontrollably angry. I would characterize my mindset on the losses today as moderately irritated (I'm not perfect).

As for the rest of the week....I am still bearish on this market. I don't think the problems in Europe will be solved quickly and we aren't seeing great news coming out of these earnings reports. Apple will likely drop big at the open tomorrow (at least I got something right on last night's blog). Intel is very near a lot of resistance (around $24.50). I don't know if it can break though right now. Having said all that, the higher volume on this rally today does make me more cautious. We might have a few more back and forth swings over the next few days. I warned of this possibility last week. The clues of a reversal showed up early today. The Dow Transports were up almost twice the percentage of the market, the VIX had dropped almost as much as it rose the day before, and the volume increased.

For those that are less experienced, you might want to sit out of this market for a day or two. I don't see many patterns out there that give me a lot of confidence. Many of the patterns I listed last night are still tradable patterns, but you will need to place those stops above the most recent high...and make sure you follow your plan.