Its a Trader's Market - Yellow Caution Light for Big Cap Leaders and Averages; Green Light for Fast Traders

Its the time of the year when the traders take over the stock market and the investors go away. Many  institutional investors have already packed it in for the year, having made hefty profits. Most of the leading stocks like AMZN, PCLN - below -  are extended and need to pull back and or rest. Other stocks like AAPL & BIDU  - see the bottom of this post - are in bases but at extended prices.

On the one hand, during the period between Thanksging and Hannukah / Christmas / New Year, trading quiets down and seasonal strength kicks in for small cap stocks. On the other hand, the light trading makes the market vunerable to manipulation.  Hence, I would not be surprised to see some vicious sell programs take the market down a bit. After all, if you are a large fund manager who has locked in large profits for the year, why not take the market down with some big sell programs. That way your performance will look even better relative to the market.

So its time to pick one's spots and trade only stocks that have extraordinary news and great charts. This is not a strategy for the faint hearted. RMBS - above - is an example of a special situation breaking out to new highs. It just broke out of a base on news of a settlement with Samsung and speculation that RMBS will settle its chip dispute with the rest of computer chip cartel. If RMBS settles, they will get paid an ongoing royalty for just about every computer and wireless chip in the world.

Investors should sit on their hands until they see the market leaders either pull back or break out of large bases. In my opinion extended stocks like AMZN & PCLN can go higher, but why not wait for a pullback rather than play a game of chicken?

At least, the extended Charts of AAPL and BIDU- above - are in nice bases. I would rather pay up for both stocks than risk further price erosion.  If AAPL breaks out of its base and sets off my 208 price alert, it will be off to the races again. BIDU will have to take out 443 to set off a buy signal.

The reason for paying up in price is to reduce risk. That sounds counter intuitive, so here is the logic behind that strategy. The idea is to invest one's money into as much of a sure thing as is possible. If a stock breaks to an all time high from an intermediate term base, the stock is in motion to the upside. If a stock is still in the base, there is no guarantee that the stock will start to run up again. Rather, the stock might drift or go down. Hence paying up reduces risk.