The Infamous 1250 and a Hammer
- Posted by JC Parets
- on August 3rd, 2011
Everyone is talking about this Head & Shoulders Pattern. Everyone is talking about this 1250 level on the S&P500. Guys, it’s not that simple. Do you really think it’s that easy to make money in the market? Remember this is an Art, not a Science.
This morning the market was getting killed. Then it came back. Then it sold off again. Think about all the people getting whipsawed around over the last couple of days. Long and shorts both frustrated. False moves? Legit moves? Breakdowns? all of these things.
Here is what really matters: The market has been on fire for 2 1/2 years. Anyone who has picked a top has been wrong. This is what makes a market. If it’s so easy to pick a top, if it’s so easy to see this infamous Head & shoulders pattern and 1250 neckline, do you really think that this is a major top?
Today the market put in what the Japanese call a “Hammer“. They call it that because they claim that a candle like this “Hammers in a bottom“. Is it the bottom after a 9 day mini-crash? Maybe. Sure looks like it to me. But the bottom line is that it gives us a nice pivot point to trade off of. It gives us traders a level where we know we’re wrong early – and that is the point of all of this. Knowing we’re wrong early is the name of the game. The sooner we know, the quicker we can take trades off and the easier it is to manage risk.
We’ve held 1250. We have NOT broken down. There is NO head & shoulders or hands or even elbows. Breaking necklines on a close (or consecutive closes for some traders) is what makes a head & shoulders. Everything else is just a false move that kills amateur traders that listen to silly stuff like this. Look at the “Head & Shoulders” last summer on the S&P500 and look at the one the summer before that? How’d that work out for the shorts?
Think about where we are. Think about where we’ve been.
I’m buying this dip aggressively knowing that the market can prove me wrong at any moment. No egos here, just good ‘ol risk management. Playing the Hammer. Looking for a rally tomorrow for confirmation. If we get it I think I’ll add to new positions. Let’s see how that works out.
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J.C. Parets is the Founder & President of Eagle Bay Capital, LLC. He earned the Chartered Market Technician designation (CMT) in 2008 and now actively manages money incorporating Technical Analysis and Behavioral Finance into his practice More
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