Kane Trading - Education for Serious Traders

					January 20, 2004 Commentary - Same old song and dance again today. Another day, another new high for the move on the ES, NQ and INDU. As they say, though, 'this time it's different'. I can't say if it really will be different this time or not, but let me explain. I've been saying that I'm leaning on the long side until proven wrong. Eventually we will get a correction to this trend. I just don't know when. So my plan is to utilize this bias in my trading. I don't tend to do as well when I start 'reading the signs' and second-guessing when I think the correction may come. There have been a few headfakes so far, where the market sells off pretty aggressively, only to have serious buying come right in. We started some selling again today, and closed a bit weak on the INDU. But the NASDAQ comp was strong, and the S&P was middle of the road, as far as the close. I'm not ready to push the panic button yet, or say that this is it. A correction will come, and I think it will be steep and fast, but I can't look at this and say it's started. I am seeing some warning signs, though, that are greatly enhancing my concentration here. Today I'm going to continue with the follow up on VTSS and FDX. This is particularly important to what I have been discussing so far. VTSS gapped open this morning, sold off a little and then recovered. Going into the close, it looked great to me. I did nothing with the position. Then right before the bell I thought I had a bad tick. I switched to aftermarket data, and saw that it was no bad tick. VTSS dropped like a rock, about 45 cents. I knew immediately what was happening. I was aware that PMCS was reporting earnings right after the bell. PMCS and VTSS frequently react together. I don't like holding stocks over earnings, although I sometimes do (VTSS earnings are due Thursday after the bell, if my information is correct). I didn't think the way things were going that the PMCS earnings would be a problem. So, I guess PMCS really whiffed, huh? Missed the numbers? Nope, for the most part they knocked the cover off the ball. Beat estimates on higher than expected revenues, with profits for the quarter tripling. It promptly tanked, taking VTSS down with it. Now here's the important part to me. The markets expectations are high in here. How could PMCS go down with such a good report? This worries me a bit, and raises my alertness level. I am still letting the remaining position on VTSS ride. But I will be watching how it moves from here. Will they take this as a buying opportunity? I'm not planning on being too jumpy. If it starts to go down, my plan is to scale out on the way down. Then if it turns back up, I'll still have some of the trade on. And if it doesn't turn back up, all my planned scale out spots are well above my entry trigger price. But I also have an ace up my sleeve. I've seen this before. I'm just about positive we'll see an upgrade tomorrow morning before the open. It may be for some particular semi stock, or the sector, or something in that space. If you don't see one, they are not going to support this in my opinion, and I'm going to get even more leery. If they do, it tells me that they are trying to hold it up. Maybe to take some profits, though? Very interesting in here. Let's tale a look at the daily chart for VTSS to see how it looks. All in all it still looks strong, but overextended. Perhaps it will try to close that last gap. Maybe that's it. I don't know, and I don't need to know to play this. That's the most important thing to remember. Let's take a look at FDX. Today was my first scale out on that play. FDX set a new high for the move, and then promptly sold off. When I saw the move up and then the selling come in, I scaled out of 1/5 of the position. Maybe this is it for FDX. See a recurring theme in how I'm talking about these plays? I'm trying to drive home a point about managing trades. I don't care, from a management standpoint, what happens from here. I have a plan already in place for every scenario. I have no control over whether this trade, or any particular trade, is going to be a big winner, a small winner, a small loser or whatever. I'm just going to manage it according to my 'Trading Plan', and then move on to the next trade. The only use there is for me in trying to 'guess' what I think is going to happen next, is if I want to use that to influence my exit strategies. For example, if I am long and the issue is approaching what I think is a stiff resistance area I might consider scaling out into that area. Overall, though, I find that even though that makes sense on paper, it rarely works better for me than my trailing stops/scaled exits strategies. I often say that I don't use 'profit targets' all that much. I also don't tend to look at potential support or resistance areas too closely when in a trade. If an area is going to reverse a trade that I am in, temporarily or totally, my stops will kick me out. I can't tell you how many times I've taken partial profits at areas of expected support or resistance, only to see it take those areas out one after another, and pretty soon I'm 'out of ammo', with not one trailing stop hit along the way. I tend to ignore everything but my management plan when in a trade. (This is completely the opposite of just about everything that I have read on trading.) The only exception I can think of right now is if I see a very solid counter-pattern set up right in front where the issue is headed. I decided to go light on the charts tonight and heavy on the 'trader talk'. We are in a critical area here, and there should be some very good trading coming up. If we do get a correction it will likely set up a lot of nice patterns.


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