Fooled by Randomness by Nassim Taleb should be required reading for all traders and investors if only to remind oneself that most of what passes for talent, gut or genius in this business can be attributed in large part to luck and randomness.
Some flare-ups of arrogance and a very trader-like short attention span are to be reckoned with here and there in the book but overall as good an intellectual experience as one can find among the recent output on trading and the markets. Definitely a wake-up call as far as my needing to brush up on my knowledge of probability and statistics.

Now would not be a bad time to take a look at this SMH, the semiconductor ETF (daily chart shown above-click to enlarge).
It broke out of a months-long 33-36 trading band on 4/24 with a gap and on high volume. It has been consolidating since and is now a little bit above 36 (previous resistance) and "coincidentally" right above its 50-day moving average. Call me conventional but, if SMH is going to rebound and keep its bullish move going, theory says it should do so at about this level. I will probably buy some July 37.5 calls on Tuesday.

Here's what looks like a rejuvenated uptrend in GOOG (30-minute chart). It still looks good on the daily (not shown) but had not done much until 5/16. We now have a valid bullish trendline with 5 touches.
I should point out that, unlike a regular line, a trendline needs 3 points to be confirmed valid.

Today was the last day of the annual MTA education seminar in New York. Presenters were unanimously bullish. A couple thought we had just started a new leg in this bull market and therefore strongly objected to the popular notion that this bull is long in the tooth. A couple did sound a few cautionary notes though. Marc Sutin (Knight) in particular notes that consumer discretionary stocks are lagging relative to the consumer staples and that retail sales are in a clear downtrend. This might indicate that the consumer is finally tapped out and that, in that case, the economy is on borrowed time. This, however, does not necessarily mean anything for the stock market. If those heralding a reinvigorated if not brand new bull market are correct, every piece of negative economic news will only serve to feed the proverbial wall of worry and prolong the uptrend.

I just finished reading a Wall Street classic from 1960, Nicolas Darvas' How I made $2,000,000 in the Stock Market. One very interesting fact: he would make "pilot buys" of stocks that he thought behaved well. If the stock continued to behave well, then he would seriously commit (buying 3 or 4 times more stock).
For those interested in knowing more about Darvas (shown here), you can check out the original 1959 Time article that made him into a Wall Street legend. You'll notice the cheesy title ("Pas de dough") which might have passed for a subtle witticism back in those days. Or maybe not.
I'll leave you with the following statement Darvas made in 1977 which reads like a technical analyst's mission statement (emphasis is mine):

"Having decided that the investment climate is right and that the industry is right I am ready to buy the particular stock if it is rising in price on volume. My basic principle of stock-market investment is that the only valid reason for buying a stock is that it is rising in price. If the price is rising no other reason is needed, if the price is not rising no other reasons are worth considering. I am not the slightest bit interested in explanations of why it is not behaving as it was expected to. I am only concerned with realities, on what is actually happening, not in conjectures, alibis, projections, rationalizations, and excuses."

I make it a point each Monday to read the Contrarian Chronicles by Bill Fleckenstein on Msn Money. In today's article, while venting about what he perceives to be an irrationally exuberant market, Bill may have unwittingly given us one of the best definitions of a bull market I've come across in a long time:
"[...]bulls deemed Cisco Systems' sluggish business to be Cisco-specific last Wednesday, with most tech stocks rising despite the news, although virtually every time the company has reported good news, those very same bulls have deemed it relevant to the whole tech tape."

Hope is a much maligned state of mind among traders. Fear and Greed are familiar villains but they are part of market lore and, when you get right down to it, without these evil twins (or twin evils), there would be no trading. But hope...conjures images of the clueless investor who gets in a position for all the wrong reasons (a tip, a misguided hunch, because he "likes the company" or because "the move is way overdone") and then starts hoping if not praying if he or she is so inclined. As my not-so-old trading mentor used to tell me: "when you start hoping, it's time to get out".
However, there is something to be said for a trading version of the old adage: "prepare for the worst and hope for the best". If your reasons for establishing a position are technically sound, if you have done your due diligence and most important, if you're emotionally secure with your position size(i.e. you didn't bet the house), who's to say that a little hoping would do any harm? After all, hope is what keeps us going, isn't it?

Courtesy of Barron's, a few thoughts on what can only be called the melt-up going on in stock markets all over the world.
Deals galore, reserves-rich central banks desirous to diversify into stocks and petrodollars aplenty have produced a fast-accelerating market while the U.S. economy is fast-decelerating. Says one market strategist: "This is now a trading market, where momentum and trend dominate, increasingly detached from the decaying domestic fundamentals."
The appetite for stocks is concentrated on S&P 500 big-caps, whose earnings for Q1 2007 are around 8% as compared to a U.S. economy that grew at a paltry 1.3% annualized during the same period.
Barron's position (a technically sound one) is that this melt-up can end only after the public has gotten involved. In other words, there is still a long way to go because if and when the public (still bearish historically and compared to the institutions) does get enthusiastic about this market, we'll need to call this something even stronger and more explosive than a melt-up.

Contrary to what one may gather from reading this blog, I don't hate fundamental analysis. As a matter of fact, I am studying for CFA1 which I plan to take next December. What better proof? It's just that, as a trader, I find TA more relevant most of the time. Having said that, fundamental analysis is also very relevant and I expect it to be more and more relevant to my trading as I learn more about it.

All this to introduce a new blog with a fundamental tilt to my blog roll: Internet Outsider by Henry Blodget. For those who were not paying attention in the late 90's, H.B. is that analyst who put a $500 target on Amazon (a target that was actually hit... before the whole Internet bubble came crashing down). He became a poster boy for all the Wall Street excesses of the era, was subsequently made a scapegoat and was banned from the securities business. Well, it looks like he reinvented himself as a blogger and a writer and a very good one at that. I have been consulting his blog on and off for months now and particularly ever since I started trading Google (which he loves to comment on in a very intelligent, incisive way).

Check out his entry today on the rumor flying around that Microsoft is getting ready to buy Yahoo. For another take (technical this time) on MSFT, check out this previous blog entry at Musings.