Did anyone catch my "mistake" in the 11:30 EST Update in regards to the Dow Industrials chart and how I reference resistance as being long-term? What we were looking at in the 11:30 EST update was a 60-minute chart. Let's look at the daily interval chart of the Dow and correct that error. While it shouldn't affect readers adversely, it's an error that proves a point. We must constantly look at various time intervals as it helps us understand longer-term, intermediate-term and shorter-term trends that are developing or still in play.
Dow Industrials Chart - last eleven months.
In the 11:30 EST Update, we labeled the above trend marked "IT Resistance" (Intermediate-Term resistance) as "long-term resistance". It was a "small error, but we took some time yesterday to explain how the "length of trend" can be meaningful when it relates to a trends strength. The longer the trend, the more powerful it can be is our belief. We just wanted to clarify this point before moving forward. Now, lets take a look at our "confirmation" levels we need to be watching (thick pink). These are levels that we look to as "confirmation" of a break in trend. Focus on the lower "confirmation" level briefly. Notice how that last decline in the Dow Industrials never violated this level of confirmation. Remember how we were "warning" traders not to be aggressively shorting while the Dow Industrials were trading above that level (Wednesday and Thursday of last week). Now lets focus on what is taking place currently. Our Intermediate-term resistance (IT-Resistance) has been broken to the upside and now we're going to watch our upper level of confirmation (thick pink) to help guide us as to potential market strength. Until that level of resistance (thick pink) is broken, we might say, "the downward trend being broken is not confirmed." Notice the consistency/discipline being used not only for breaks of support, but now for resistance. What's good for the goose, is good for the gander. Just as traders should have been "cautious" for shorting stocks in this index a couple of days ago, they should be just as cautious for buying stocks here! Remember that we've also been harping on the fact that this is a "traders market". We're not looking for home runs, but trading for profits. Couldn't we also say that our "confirmation" levels are almost acting as a trading range for the Dow Industrials? Don't stop here! You can probably use the above technique for indexes and stocks you're trading on an hourly/daily/weekly basis!
IBM short update as equities strengthen
As the session progress, the Dow Industrials and S&P 500 Index continues to strengthen and the NASDAQ has also turned positive. We thought we would update our International Business Machines (IBM) short play even though we updated the trade at 11:30 EST.
International Business Machines Chart - 60-minute interval.
Two-hours ago we alerted traders to the fact that the broader markets were strengthening and that this type of activity wasn't conducive to shorting. Nonetheless, part of the reason readers subscribe to our service is to be educated on trading techniques and to better understand market dynamics. At 11:30, we put up a chart of IBM which showed the stock trading at $84.68 and yesterday's short was still profitable by $0.95 cents a share. As the broader markets have rallied, shares of IBM also moved higher and should have had any remaining short-term traders stopped out at break-even. There may be some swing-traders still short the stock, with their stops just above our downward trending resistance near $90. While I'm sure that all of our readers didn't short IBM, it's a great lesson on how shorting a technically weak stock is beneficial. If we had randomly shorted a stock we "felt" were weak; the broader-market positives might have had us booking a loss today. By identifying a technically weak stock, the stock didn't surge against us. What we also can learn from the trade is how "powerful" the broader markets can be as related to trading. Further proof that "the trend is your friend". Today, the trend wasn't with us. We outlined in our original plan that we needed some downside participation from the broader market to hit our target on IBM and that just didn't happen. What we do know, is that IBM is weak verses the market. If the markets turn sour in the next couple of days, we've got a stock now that we "know" is weak and we'll put this one on our "hot list" when the broader market trend turns lower.