Sunday, January 27, 2013

What To Do When The Market Is At New Highs

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All About Trends
Weekend Newsletter
What To Do When The Market Is At New Highs
January 27, 2013

You Can Only Stretch A Rubber-band So Far 
Before Its Potential Energy Snaps Back And You Give Back This
You see, when markets get as stretched as much as they are the market starts to look for reasons to pullback. But before we get to that and our game plan for profiting from an extended market, let's review what we said last week about GOOG.
"Thanks for the gutsy GOOG call "in the face of fear."  I earned $950 on GOOG overnight, bought 20 at $698 and sold today at $746. I greatly value your All About Trends work, have subscribed for several years now, and profited consistently," Sean -- ClevelandOH 
In last weekend's newsletter we said:
"A down open like Friday's action takes GOOG to the 50-day average. Keep in mind that GOOG makes up 5.5% of the NDX 100 index. Seeing as how AAPL has bit the dust and it's not able to do the heavy lifting in this index too much anymore what better name to gravitate to than GOOG in order to keep the drive alive.  We've seen this time and time again with AAPL in the past due to its heavy weighting being able to lift the index time and time again so MAYBE GOOG is going to start taking its place.
That being said:  

This means we have to go long this name Tuesday IF we see any opening weakness. Why are we going long ahead of earnings? First off we are willing to take the risk knowing full well the end result could be a loss and secondly is that this issue have been selling off into earnings and is at a support zone of the 50 day technically speaking.  It's your choice whether you want to trade along side you know. Nobody said you had to, if you don't feel comfortable then don't take the trade."

And that's just what we got (a down open Tuesday) and that's just what we did (buy GOOG).
After the close Tuesday, GOOG reporteearnings that were better than expected and the stock popped 5%.
On Wednesday morning, we issued a Locking In Gains email alert to our paying subscribers to lock in gains of $738.  Add to that IBM ($500), REGN ($721) and AAPL ($890) and we have a nice month here all the while staying true to our Pullback Off Highs, not chasing buses and "be there" trade discipline all the while never getting too invested at any one time.
So now what?  What do we do now that the market is retesting multi-year highs with multiple stocks well extended?
There is an old adage that comes to mind here and that is? 
When the circus is in town you have to sell your peanuts!
Let's start with the following charts:


Aside from the extended nature of these issues one needs to dig deeper and ask, "Who is actually buying here? Who in their right mind would even consider chasing it up here?"
Surely not the smart money because if so how can you call them smart for chasing an index and buying after the fact -- that's dumb money in our opinion.
Smart money did not get the term smart attached to them by buying stocks at 5 year highs in an emotional frenzy AFTER we've just ran you know, that's suicide for ones career.
Smart money uses strength (this is how the little guy gets sucked in by the way, think masking under the surface) to walk away. Don't forget for every buyer a seller and every seller a buyer right?
Don't forget Wall Street buys fear -- YOUR FEAR.  Just look at October and November of 2012!  Just who did nervous Nellie think she was selling to anyway? Actually us as we were buying AMZN down there and numerous others at that time when they tagged the 200 day average and nobody wanted them.
The flip side is? Wall Street sells peanuts while the circus is in town which is a fancy way of saying Wall Street Sells Greed. But to who? Greedy Gus right? Does everyone now get the mechanics of this?   
So you see, markets actually distribute while going higher -- out of the strong hands and into the weak hands.  So the next time the markets get into a correction and things look really really ugly on the surface? Well then the Face Of Fear phrase should be on your mind and that's really the time to be excited.

"What Do I Need To See To Make Me Take A Trade" on the long side for the above 3 stocks?
Simple, either a Pullback Off Highs (POH) pattern or a tag of a moving average just like GOOG did last week.  It's as simple as that -- always let stocks come to you!

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