The Trader Daily

 | Aug 26, 2014 | 7:30 AM EDT  | Comments
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Stock quotes in this article:

twtr

,

achn

,

dust

As you've no doubt already been told by every media outlet in existence, the S&P 500 cash index crossed 2000 for the first time on Monday. But honestly, outside of anchors on CNBC and Bloomberg, who cares?

While the S&P 500 was attempting to push through 2000, two things stood out to me. The first was how many folks on Twitter (TWTR) were trying to draw major (sentiment) conclusions by the number of apparent bulls making fun of bears. And the second, how many of the same old arguments bears were regurgitating for why one should not be buying the market at current levels.

Let's begin by addressing point number one. Unless you're following a large number of active traders (and tweeters), and have maintained impeccable notes for how these traders have acted and traded in the past, you're probably grasping at straws. Put another way, you're trying to create your own sentiment index without having sufficient data to back test your conclusions. The bottom line is that if you're attempting to secure a trading edge via increased levels of financial social media sarcasm, I'd reconsider your strategy.

Trying to gauge overall sentiment by reading Twitter may be fun for some. But I assure you, when it comes to actual trading, following price will serve you better. Because while you can never know how honest a trader on Twitter is, you can always see what price is doing. Price may fib from time to time, but it's rarely capable of lying for very long.

As far as point number two is concerned, generally, after the major indices have rallied for two or three weeks, bearish traders and strategists hit us with the same arguments they've been making for the past few years. These arguments center around bulls being over-confident, price momentum running at extreme levels and the last short-selling bear having been killed or wounded beyond repair. If these arguments were made a dozen different times over the past two years, and, by my calculation, have failed to produce favorable results, wouldn't the logical approach be to question their relevance?

My goal here is not to appear unfairly critical of equity bears or market naysayers. I simply want to encourage traders to avoid falling into traps that result in emotional, and generally wrong-footed, decision making. Leave the emotions, sarcasm and headline generating statements to the folks on TV and Twitter. In my experience, one's odds of consistent and profitable short-term trading improve greatly when one ignores opinion-based statements, and instead focuses on market-generated information (i.e. price).

Additional Notes:

  1. Like most things in biotech land, Achillion Pharmaceuticals (ACHN) traded higher on Monday. However, while I remain bullish and long the stock, let's not lose sight of the fact that it's rallied 40%-45% over the past 10 trading sessions. Sure, the stock has a promising Hep C drug. But there also appears to be a quickly growing takeover premium being built into the stock price. The bottom line is that if you're long from lower levels, consider implementing a tight stop loss. Something along the lines of a close beneath the five-day exponential moving average should suffice.
  2. Since last week's break beneath $1280, gold futures haven't managed much in the way of downside follow-through. That said, the Direxion Daily Gold Miners Bear 3X ETF (DUST) has managed to sustain its gains and trade higher. If you're involved in this ETF, pay close attention to the five-day EMA, the 20-day simple moving average, and of course, any sustained strength in gold futures back above $1285-$1290. For the time being, the risk to gold futures appears to be down toward $1240.

Any trading or volume profile-related questions can be posted in the comments section below, emailed to me at parkcityyeti@gmail.com or posted to my twitter feed @ByrneRWS

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