One of the important uses of this letter is to call attention to the ongoing state of the market — when it’s trending and when it’s trading.  This is one of the most important questions in investing (and, obviously, trading).  Amazingly many traders don’t know when the market is in a trading mode –except for the fact that they are making money.

Right now the markets are trading.  Sometimes we say they are boxing markets.  Or fencing.  For trenders we are in a downwave which may evolve into a downtrend.  Or it may trade for awhile and then resume it’s upward trend.  For ourselves we don’t need to know which is going to occur.  We know that as long term traders we are waiting for stops to be tripped which will put us short.  (Some of us, who habitually struggle against the fates, jump early and attempt to allay the effects of the downtrend.  We fence with the markets by hedging.)  They always said we were smart alecs in grade school (and high school and college and…).

So we have looked at some issues as to strategies, first, BAC which will be the first of some comments:

Here the Basing Point stop is illustrated.  It would certainly be unwise to sit through that stop. On the other hand a trader should have traded the reversal pattern at the top in October.  Or the one in January.

Stay tuned as we will be posting frequently for a few days as the market trys to spit us with its rapier.