June 9th 2013: Don't play the slippery eel!

Here's a pattern that I'm seeing more and more of lately...

The market will form a defined top or bottom, traders will position their stops accordingly to control risk, programs will run them out, suck in bears and immediately reverse higher to squeeze the bears and force stopped bulls to play catch up.  I've seen this in bonds, emerging markets, US markets - it's everywhere.

My advice is don't play their game.

Now whenever the market pulls back hard, I always assume that the "left shoulder" will fail, i.e., the first hard pullback and I never buy it.  There's almost always a 2nd lower low.  It makes sense psychologically when you think about where traders will have their stops and how they might be positioned at certain key levels and, most importantly, where the programs will be hunting both longs and shorts.

If at all possible, think about where the programs might try to attack - NOT classical, textbook support and resistance stop levels.