If you haven't checked out shadowtrader.net -- you should. (see the links list). One thing I like about the daily videos on this site -- is the idea of creating a 'narrative'.
Stocks move based on stories of hope and less often on actual facts. FB is obscenenly overvalued, but the story -- ah, the story of Facebook with its super dominant control of social media and billions of users is powerful. Same with Amazon. Powerful stories explain the price multiples. And as we've seen -- when the story falls apart (see NFLX, GMCR) -- the return to Earth moves can be spectacular.
So now the narrative of the global markets is briefly dominated by the Spain bailout. It's not clear how long $100 billion euros can boost the markets. The markets had one of the best weeks of the year last week anticipating this news.
So now, more than ever, we must focus on our charts and filter out news/emotions. The first thing to do with big news and gaps -- I feel -- is to look carefully at your charts especially at the higher timeframes. The 15m candles and even hourly/daily candle charts will reveal just how far extended we are. Will buyers on Monday morning support these levels?
The narrative I believe we are in is one of short term stimulus and hope, followed by brutal recognition that little actual progress has been made. This tiny bailout, for example, has caused oil prices to jump 2 dollars/barrel overnight -- a global tax that will cost consumers $100s of millions of dollars.
But the idea of following a 'narrative' is interesting. A Spanish bailout is simply not a story that will last more than a day or two. Then what? The narrative will likely shift --- maybe to 'who else needs a bailout?'. The narrative of oversold conditions will morph into overboughtness.
Focus on the narrative, but also consider how long the latest story can impact the markets and what stories are coming? It might help you stay just ahead of the crowd and give you the confidence to make a big trade when the charts confirm what you think the story is going to do next.