Wednesday thought on $DMRC, $AMRN, $AKAO, $ONCY, $BIOC, $ARTH

Are you convinced yet?  No, not that… it’s the magic of the doji bar.  While the “little guy” with a Japanese sounding name looks like an insignificant foot soldier in the army of candlestick bars, it is actually one of the most powerful and dependable bar in the whole candlestick outfit.  A doji means bull and bear go home with a stalemate.  A stalemate at the bottom of a trend meant the bear had expended its downward momentum and the bull had enough force to force a stalemate.

Think of the boxers throwing punches at each other.  One boxer deliberately played defensive only and forced the aggressor to expend energy for the offensive.  And when the aggressor started to throw out weak punches (forming of a doji bar), the defender felt the low energy and began to hit back.  In the same manner of speaking, with a doji, the bull “felt” the low energy of the bear.  A bounce (like today bounce) was the bull picking up on the bear lost momentum and began to fight back with buying force.

In summary, when you see a doji at the last trending bar, it usually means the trending direction is losing energy.  And when you see a doji at the last trending bar near the support/resistance, you’ve a very powerful combo that can make you consistent money if you exercise discipline and strong money management.  In a nutshell, master trading the doji and support/resistance combo with disciplined money management and you’ve a winning system.  Forget all the other fancy algorithms or complex chart patterns. You might sound impressive with all the technical mumbo jumbo, but building a trading system around them becomes a fairly complicated process.  The more complicated the trading process, the more room for the trader to deviate away from the trading plan. With this doji system, all you have to do is to ask, “Where is the doji bar?”

SPY_Daily

Look at the bounce as if on cue.

While the general market bounced, my port was still reeling from the biotech hangover.  After some thought on the meltdown, I’m getting a “feeling” that this downtrend while looking good “on paper” for the short-sellers, they are actually in a deep doo-doo.  Remember, the short-sellers are no difference than the ones that are long the stocks; both have the same emotional process of a greedy human being.  When the existing shorts saw the waterfall price action, their greed light-bulb intensified x-times and the blood flew to the heart and mind.  Dollar signs began to flow around their eyes.  Dreams of a luxury vacation, a fancy sport-car, a hot date at a fancy 5-stars restaurant (not to mention an exciting evening ahead)… so with the dreams flowing thru the short-sellers mind, what do you think they are doing with their existing short positions?   Nothing!   Yeap, that’s right, they are looking for the gram slam break-the-bank, file-the-chapter 11 disaster to bestow on their companies they are shorting.  Meanwhile, the NEW shorts that rode the waterfall down with the panic sellers are jumping up and down with joys in their greedy heart. Together, the new and existing short-sellers increased the short-interest of the stocks they are shorting.

As a reminder, higher short-interest = powerful short-squeeze.

Imagine the conversation when the new short bumped into the existing short-seller.

New short: “Hey buddy, we are looking good!  You’ve been here long?”

Existing short: “Been here awhile.  Did you see any real bull dumping their shares?”

New short: “I think so, I saw a few panic bulls trying to outrun me. Why you asked?

Existing short: “You must be a newbie, you know we need more panic bulls to dump their shares to us so we can cover.  The fact that we didn’t cover yet means we are the reason price is this low now.  If we get too greedy by walking the price too low, we might not be able to find enough panic bulls when the bargain hunters arrive in town to eat us alive.

Here is another way to look at the scenario…

Imagine walking into a dark street alley.  There were lot of hungry and frustated people around but they all seemed to be busy looking for someone.  Before you knew it, somebody grabbed your hand and pulled you to the corner.

You have shares to sell?”

No, I’m not selling anythi…” 

You got pushed back out on the street before you could even finish your sentence.

After a few of these pull and push, you realized all these people were short-sellers looking for real sellers of shares so they could cover in-the-money.

The way I look at it, at this point in time, as long as the companies I’ve a stake in is still working hard on building their business, the short-interest numbers represent the level of trapped volatile liquid explosive just waiting for an explosion to happen.

All I need is an explosion of short-interest in one out of my six positions and I’ll be doing quite well.

Current holdings:

Main port: DMRC, AMRN, AKAO, ONCY, BIOC   Trading port: ARTH

My 2 cents

From my camera:

MapleLeaves



Categories: Daily trading Journal, Trading philosophies and thoughts

Tags: , , , , , ,

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: