Once Bitten Twice Shy

After sitting here staring at charts every day, a trader gets a feeling of, “I’ve been here before. I’ve seen this before.” The last few weeks I’ve had that feeling. The key now is to decipher that feeling into market buys, and sells, using charts and patterns.

Once Bitten Twice Shy: An interesting market pattern foretold the decline of the past few days. In May, the Nasdaq finally stalled. With an extended market to the upside, I’ve been looking for a pullback using the QID ETF. The Nasdaq finally took that dip ten days ago. Since QID is short the market, it shows as an upside green bar. Being conservative, I waited for the QID to pullback a couple of days.

Seven days ago, brought a buy signal, which quickly went bad. In fact, it was an outside day, engulfing the prior day’s bar. Two more days took the QID even lower. Then, another buy signal. This one was not conservative, since QID was still in a downtrend. Should it be bought? Here’s where that feeling of, “I’ve seen this before hit me.” Anyone buying QID on that last buy signal has a bad taste in their mouth, and less money in their account. That makes pulling the trigger even more difficult if you trade with emotion. It’s the once bitten, twice shy dilemma. The market knows that, and knows you’ll have trouble. Yet you must buy. We’ve had three higher lows, and higher highs since. Notice the acceleration over the 20dma. The likely target is the 50dma.

It sure felt like a trend day about four hours into trading.  Notice how the 5-min 50ma held the stock above it near trading end of day.