A Complicated Trading Environment

 | Jan 03, 2012 | 1:48 PM EST  | Comments
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One of the most challenging aspects of this market in the last few months has been that most of the action occurs overnight. News out of China gaps the market one way or the other, and then it drifts around aimlessly the remainder of day. For pure day traders who go to cash at the end of the day, this action is hellish.

What complicates matters is that the gaps are random enough to make the holding of position plays problematic. If you're loaded up and caught leaning the wrong way for the next gap, it will be painful.

You can continue to try to catch the intraday action, but it's been far better to look for reversals off the open rather than to try to chase momentum. Shorts worked well this morning as most stocks are well off their early highs, although breadth is still impressive.

The other way to play this sort of action is to gamble on the morning gaps. That has never been my style, but if you want to put some cash to work, there aren't many choices.

I've done a bit of intraday flipping and have my eye on a few things for possible closing buys, but I see little in the way of longer-term positions. In fact, I'm looking much harder at short setups, especially as the positive seasonality to start the year is going to cool fast. The bounce in gold looks like a potential shorting opportunity.

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