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Thursday, April 15, 2010

Moth to a light bulb..


This is the envelope chart that I was following today and I interpreted it wrong and paid a small price.  As soon as FAS hit 105.48 the top channel of the envelope I couldn't wait, I shorted FAS and was thinking this is it I caught the exact top.  Nah! It wasn't.   FAS kept going higher and higher and I had to bail at 116.48. I lost a full dollar.  It is never a good idea to pick a top and never a good idea to short when the drums were beating loud and clear (JPM earnings are great) attracting buyers.  The top is a flat formation even near the end and close to the top of the envelope.  V type tops are rare and when they happen they are quick in piercing the top line.  Nonetheless we are getting closer.  I do not honestly know when.  Everything points to soon very soon.  I am just going to wait to short.  At least a DMRM has to happen.  


The chart on the right FAZ 60 minutes from Feb 5th.  The RSI was a low 15.65 meaning FAZ is way over sold.  I have marked low RSI's and FAZ lows on the chart.  ETFs can continue to drift lower even with very low RSI.  Meaning a capitulation hasn't happened and panic selling can quite often follow when RSI is already very low.  Another interesting thing that has been happening in FAZ is that it rallies a small bit just enough to release the oversold conditions.  Then the bigger trend takes over and FAZ continues lower.  
I am still bullish and will unload very small amount of longs but am not going to short without a signal.

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