The markets continue their resilience this morning as the S&P 500 continues to lead the indexes higher, while the NASDAQ Composite has managed to climb enough to finally test its all-important 5/8 retracement level and breach the top end of the upper band we mentioned in yesterday's edition. All good signs as the worries over the fiscal cliff seem to have investors and traders thinking there was never a cliff in the first place. Another classic example of media mongering that has left many investors without the necessary technical tools out of the picture. It's important to always remember, the trend is your friend. If you've managed to play contrarian at every short-term scare in recent weeks, you're probably at the very least making enough money to buy your family just about everything on their wish list this Holiday Season. Santa has been known for decades to bring cheer to the markets around the Holidays, and it appears this year is no exception. We've had a technical tailwind taking place ever since the November low with the S&P leading the charge. I've included a daily chart here of the S&P showing you the importance of the 3X3 DMA as it relates to short-term trading of the indexes, or really any thrusting idea for that matter. You can see here every time the S&P has traded below the 3X3 in recent weeks (black arrows), it has managed to find a firm bid within a maximum of three bars of trading below it every single time, without fail. Thrusting stocks and indexes can often be the easiest choices to profit from if you're willing to utilize the 3X3 for entries and exits. What I mean is when you're trading a thrusting stock or index, once the chart in question gets below the leading displaced moving average (DMA), it often offers a ripe entry in anticipation of the idea managing to find its way back above the 3X3 in a fairly short timeframe. In other words, buy the dip and sell the rip higher. Once the idea in question runs too far away from the 3X3, that's where we like to exit and take profits. Since a stock's movement can often be attributed greatly to human emotion, this is why we tend to focus on more technical tools that can give us an indication of what a stock may do going forward, based on how traders like to react to what's going on. Let me elaborate on this a little. It's pretty common knowledge most average investors and traders tend to jump on ideas "after" they've made big moves. Then, when the idea in question moves the other way, they get scared and bail, thus losing money and often saying to themselves, "That figures, I finally decide to jump in and of course, it falls apart". There's a very savvy and large lesson to learn for many investors here. You've got to be opportunistic in every market environment. If I had to say what I believe to be the most important aspect of trading or investing, it would have to be patience. Nothing ever typically goes up in a straight line and the same goes for stocks that continue to move lower. However, let's be clear about one thing, stocks move lower much faster than they move higher. Why? Again, human emotion. Fear and greed are probably the two most prevalent emotions that make up the markets. When stocks start to fall apart, impatient investors with poor entries start running for the hills, which ultimately causes a stock to tank far quicker than the time it took for the stock to achieve a certain level to the upside. Conversely, when stocks run too much too fast, unknowing investors and traders flock to the idea, only to be late to the party and left holding the back as the smart money exits. Positioning is critical when entering an idea unless your strategy is extremely long-term in nature, of which charts can be useful but fundamentals should be at least an equally important part of the decision making process. However, when it comes to short-term swing trading, I often could care less about the fundamentals of an idea. It's always good though if you're going to trade on a short-term basis, you do it with ideas that not only technically look very appealing, but fundamentally look appealing as well. Why not, right? Waiting for the right entry is always prudent even if the idea starts to get away from you. You may of heard me say before, it's better to be out wishing you were in, than in wishing you were out. Additionally, if you've been around the markets long enough, you know just about anything and everything is possible, so a good defense can often be an integral part of a good offense. With that being said, from a technical perspective, this market does have every reason to go higher, however, I'm going to suggest we get more and more cautious as we approach the September highs. Why? Because a break above the September highs would clearly be an excellent sign for the markets across the board. If and when we get there, or as we approach those levels, I'll explain why. However, a failed test of the September highs or a selloff inititated just short of those highs will not be good for the indexes as a whole. As it stands right now, just like I mentioned above, we're clearly testing the 5/8 retracement on the NASDAQ Composite that we've been pointing to ever since the Composite washed and rinsed traders back on the 28th of November in a fairly furious reversal, which all took place within a single day. It happened on the day it challenged the 3/8 level, which suggested there would likely be another decent leg up. That's what we got and here we are now. It's going to be very interesting to see if the Comp. can hold and move higher from here. I suspect with options expiring at the end of the week, we're going to see some volatility, but if you're going to pick up some index ETF put options in anticipation of at least another short-term pull back, make sure you do it on this high. Again, don't do it after the market pulls back because just read my above commentary on precisely what could happen if you do that in this market right now. If you jump on the short side too late, you may end up being late to the party only to find yourself having to cover up as the indexes go higher. Right now, the Comp. is sitting on a very logical resistance level, so if you're not long now, don't be. If you are long, shed the short-term positions and lock in your profits. If you're investing strategy is much longer-term in nature, congrats, I don't think there's anything to worry too much about at this point except maybe a logical and much needed pullback. As for our recent suggestions to add CSCO and JNPR to the low risk longer-term aspect of your portfolios, we're doing just fine. CSCO is up a little over 2% and JNPR is up a little over 3% in just a couple of trading days since we put the ideas out there on Friday. If you're strategy is more short-term in nature, keep a close eye on those in the event the indexes pull back, and set your stop at your entry. JCP, Turnaround Gone Wrong or Just Needs Time? Before we let you go today, I have to address a reader inquiry we received yesterday. Actually, I don't have to, I want to. The reader, who I'm not going to name, sent this in... "I noticed you haven't mentioned JCP in any of your recent editorials, although you suggested it was a buy several weeks (three dollars) ago. Feel free to gloat!" Obviously, his comment was extremely sarcastic in nature. First, what I find so interesting about some investors is they either want someone else to blame for their decision making, or they will be so quick to let you know you gave them a bad idea even if you've given them nine good ones before it. This can often be a pretty thankless business, but the truth is we're going to have winners and we're going to have losers. It's all about the total returns at the end of the day. You can say anything you want to us at any time simply by filling out the contact us feedback form on our site, or by simply replying to the newsletter. Either way, we read everything and more often than not have a response. Although we have had a handful of losers in 2012, I think it's been pretty clear for our longer-term readers that 2012 has been an incredible year for our trading and investing prowess. So to the person I'll call D., yes, we suggested JCP back on August 10th, here's the edition, maybe you should read it carefully. There's a lot of "if's" in there. However, from the day we suggested JCP might be a stock worth considering, shares of the fallen retailer managed to run to as high as $32.58 on September 19th when the stock went parabolic providing our readers with over a 40% return in just over a month. If you weren't willing to take profits there, I don't know what to tell you. Then, on September 21st after the stock fell from grace on news the CEO suggested their turnaround story would take some time, we published another edition suggesting the possibility of another entry on the sharp pullback, but more importantly made something pretty clear. Here's the excerpt from the end of that edition... “If you believe JCP's turnaround effort is nothing short of pioneering new retail strategies, this may end up inevitably proving to be a nice secondary entry for those who didn't participate initially. Time will tell, but my bet's on Ron Johnson to continue to get things turned around. Again, 40% was a gift, but now that the stock is down around $26 and change, it's worth a shot from here. Of course, never let a gain turn into a loss and protect your downside by employing a logical stop loss you're comfortable with should our analysis over the long haul prove out to be wrong. I for one don't think we'll be wrong on this idea, however, nobody has a crystal ball.” Lastly, on October 15th, we published another short comment on JCP suggesting it had technically retraced a complete 5/8 of its move that started back when we first suggested the idea. As it stands right now, the stock has been subject to a pretty decent beating with shares of JCP trading around $20 and change. Yes, D., the stock is off from where we suggested the idea last time around. Were you around the first time around when we clipped over 40%? What's important here is if you go back and read all of our editions, we usually make things pretty clear that investors and traders should understand who they are if they're going to participate in the markets. Are you a short-term trader or a long-term investor? If you're a short-term trader, you should always be planning your trade well in advance and exercising stop losses in the event you or I are wrong, or trailing stops when you're profitably in the money. If you're a long-term investor in a stock like JCP, then basically you're betting on the fact that the Company is going to get things turned around. However, turnaround stories take time. Right now, shares of JCP continue to trade in a pretty wide range between the mid-teens to as high as the low $40's for almost four years now. If you're in the idea right now, I would use the recent run-up as an exit opportunity because the stock appears as though it may want to test the lower end of its long-term range. I'm not a fan at all of their recent media campaign, so couple that with weak stock performance over the last while, and I don't like what's going on. Again, read the first edition we published on the idea informing everyone on what specifically to look for with the Company's strategies going forward. Remember, things can change pretty quickly in the markets, so you've got to play a little defense when you're offense is sputtering. I hope this answers your question D.. It's never our intention to simply gloat over our victories and ignore our losses. We just thought we made it pretty clear what we thought about JCP the first time around and very specifically suggested what to look for as the Company staged its turnaround. Next time D., maybe you can be a little more professional about your inquiry. Have a great day all. See you again tomorrow.