Buy Stops Directly Overhead

The market does not make it easy to make money.  It sets all sorts of traps for traders along the way.  Right now we are digesting the gains off the Japanese earthquake lows and waiting for the next move up or down.

I stated last week that I felt the path of least resistance was higher.  Even in light of the aftershocks in Japan, I still feel that this market wants to move higher before it corrects.  How will it rally?  It will use the wrong way traders as fuel.  This move to previous resistance got a lot of traders short looking for more Fukoshima-style action, and where do you think these short sellers will place their buy stops?  Just above the highs.  If we push above the highs the buy stops are elected and we have a built in leg up.

Or course, the opposite is also true.  There are plenty of longs in this market that could have a hair trigger and sell on the first sign of weakness.  Are we overbought?  Yes.  Could some unexpected event derail the market and cause us to sell off 100+ S&P handles?  Absolutely.  It’s late in the rally and therefore there’s more risk than usual for longs.  We can only play the probabilities and the probabilities point to higher prices.  Bottom line: I’m looking for traders to hit buy stops before sell stops.  Watch your risk here.

Disclaimer: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please click here for a full disclaimer.

blog comments powered by Disqus
Dynamichedge Blog