Wow, how about that Amazon run in the last 90 minutes today. If you ever want to see what an emotional buying frenzy looks like all you have to do is look at the chart for Amazon today. The expectations going into earnings today were being set very high, and people who have been playing the momentum stocks (Apple, RIMM, etc) just piled on to Amazon expecting the same kind of momentum to continue. Unfortunately for all those who were buying in the last 90 minutes have now all taken a big loss. Amazon is down 10% already in after hours as their earnings were not a blow out as everyone was expecting. The momentum buyers are now sitting in shock and saying to themselves “what happened?”. What has happened is people get caught up in the emotions and they don’t want to be left out, and so they buy into the emotional rush. Lisa and I have talked about keeping emotions out of your trading many times, and what happened with Amazon is the perfect example of how emotions get you burnt. When you sit at your computer and you see something running up fast and furious does not mean it is OK to follow them. Just because someone else is buying something does not mean they are right. And buying something right before earnings is nothing more than a bet in my view, it is just like placing a bet on a roulette table, and today the house won.
Today’s market action was schizophrenic, wild swings in the broad indices today. That type of movement shows complete indecision, and yet once again, smart money was cashing out on price advances. That is what brought our markets down in the first couple of hours after the gap up open. The remainder of the day continued with incredible swings in some sectors, and it was incredible to watch the extreme indecision levels that were also evident today. Lisa and I discussed that some of these momentum stocks may be at capitulation levels now. If you are in them, please keep a tight grip on them and get out of their way if they start selling off. Capitulation means that a top has been reached and you may not see these levels again for some time. Capitulation is difficult to pin point with absolute accuracy, but what you look for is extreme price movements (up or down) with very high volume.
As Lisa stated earlier, our swing trade on Tiffany Company (TIF) hit the trigger price and the confirmation price all within today’s trading. RebelTraders has entered a swing trade (SHORT) at $53.00 (actually my fill was at $53.03), but what is 3 cents among friends :) The reason we chose Tiffany for a short swing trade candidate is because it has been trading below a trend line, which had been in force since April of last year. In July of this year Tiffany broke below the trend line and has since that time been trying to reclaim it. But other technical indications have been indicating weakness the closer it got to that trend line.
