Market Always Keeps Traders Honest – Watch For This Pattern – Don’t Get Caught

Posted 9:30 AM ET - The market has been in rally mode the last six days and a down open seems foreign. The S&P 500 is down nine points and the gains from yesterday will be erased. Dovish comments from Yellen and a dismal jobs report will push the Fed's timetable back. Global markets love easy money and dips will be brief and shallow ahead of the FOMC next week. I will trade from the long side today once support is established. Strong stocks will be easy to spot and they will rally when the momentum stalls. This will be my primary strategy today, but I will keep one eye on the market. It has been very easy to buy dips the last few weeks. The market has a way of keeping traders honest and you need to watch for this pattern: 1. The market drops quickly and establishes a low. 2. Stocks quickly rebound and the losses are erased. 3. Bullish speculators are lured in. 4. The bounce reverses quickly and bullish speculators are flushed out. 5. The market takes out the low of the day and selling pressure is constant. I don't know if we are going to see this pattern today, but we are certainly set up for it. The market is near the all-time high and trading volumes are light. A small round of profit-taking can go a long way in this environment. Oil is down this morning and that will pave the way for a little profit-taking. I plan to trade from the long side today. I am aware that this rally is a little “long in the tooth” and that we could see some profit-taking. Consequently, I won't load up on longs and I will constantly keep an eye on the market. I have tried a few shorts this week. The results were mixed and profits were offset losses. The vast majority of my trading is been on the long side and the gains have come easily. That tells me that the long side of the market is where you want to be. The potential for a nasty down day exists. Trade from the long side and be aware of the pattern I described. If the market makes a new low after two hours of trading, you have to favor the short side today. If the first hour low holds strong, the market will grind back. I have no overnight exposure. Market support is at SPY $210.80 . .

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