Trading StocksBy Andrew Nyquist     After a fast start, the U.S. equity markets spent the better part of March consolidating in a range of S&P 500 1540 to 1570 and  Dow Jones 14,400 to 14,600 before pivoting higher last Friday and bursting to new all-time highs this week. With this move, many bears have capitulated, and folks are now beginning to “believe” again. From the Friday lows to the Thursday highs, each day has added more steam to the rally. Similar to a blow-off. And for these reasons, I decided to go against the grain and take an initial “trading” position in DOG, the short Dow Jones Industrials index fund.

I will plan to add to this position should the momentum carry forward this month. Adds towards 15,000 and 15,200 seem reasonable, but should the index break above 15,250, I will re-evaluate (and likely stop out the position for a smaller loss above 15,300. If I am able to achieve a full trading position, I would likely end up being short the index from roughly Dow Jones 15,000 (on average). As a reminder, this is simply one position in my portfolio and is currently serving more as a hedge than an outright bet on direction. On a personal trading note, I find that short-term trading of index funds towards the beginning and end of waves allows me to be more in tune with the flow of the market. If sized and built correctly, risk remains under control, while I gain insight into the market pulse, which assists in monitoring other trades and trade ideas.

My initial take on this trade is shorter-term in nature, identifying roughly 14,600 as a first target, followed by 14,400 and 13,800-14,000.  Although this corrective action could come as early as this month, I think it is more likely to occur in May. Either way, I will put a 2 percent stop on the average cost of my position to keep risk on tight leash.

On a longer-term basis, I still see more gains ahead through 2014. But I’m a trader, and I take one wave at a time.  See technical charts below, near-term and macro. Trade safe, trade disciplined.

Dow Jones Industrials Near-term Chart

Dow Jones stock market chart

 Dow Jones Industrials Longer-term Chart

Dow Jones weekly chart

Twitter:  @andrewnyquist  and  @seeitmarket

Position in DOG at the time of publication.

Update: Author sold position in DOG on Monday, 4/15/13.

Not Investment Advice – Please read investment disclaimer.