Don't Ignore the Market's Hints

This article originally appeared on RealMoney.com on Sept. 2, 2014 at 2:22 p.m. To read more content like this AND see inside Jim Cramer's multi-million dollar portfolio for FREE... Click Here NOW.

Sometimes the market gives you hints you are wrong. A little tap on the shoulder, "Excuse me, you might want to rethink that." Other times, she is less subtle. The tap is replaced by a shove to the ground. The polite "excuse me" is replaced by the sounds of your groans of pain as the market walks all over you.

I am going to accept the polite tap on oil and get the heck out of the way, which means I'm taking my loss on the long Diamond Offshore  (DO)  position. The taps includes a rising dollar, falling gold, falling oil and struggling stocks in the energy sector - plus, the market is near an all-time high. Maybe she's tapping a little hard right now, so I want to avoid the push.

Diamond Offshore (DO) -- Daily
Source: StockCharts.com

Looking at the slightly longer-term chart on the U.S. Oil Fund  (USO) , there just isn't a whole lot to like. Support comes in around $34.50, and I could see scalpers trying to trade off that level, but there is no momentum right now to support anything more than a dead cat bounce to $35.60.

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I was hoping for a push higher this week to get short. It simply did not happen. A close below $34.50 this week should set up for a quick trip to $33.70, and then ultimately a dollar below that.

U.S. Oil Fund (USO) -- Weekly
Source: StockCharts.com

When I see longer-term pictures like that, it makes me realize that selling DO today is the move that will let me sleep at night. My long position was based on the thesis that oil would have a short-term bounce and DO would break higher from a rising wedge. Initially, it did break higher. I could even hold through a pullback to $44 after the $45 level was hit.

Well, it pulled back and then kept pulling. There are no bullish divergences to trade and now a close below $43 would set up a push toward $41 as a target. That's too much for me. I would rather buy back in above $44.60 then take a shot right here.

Ensco  (ESV)  was a requested name last week. Given my current thoughts on oil, my thoughts short-term on ESV should be pretty obvious as they are the same as DO. The key chart on ESV for me is the weekly chart.

Ensco (ESV) -- Weekly
Source: StockCharts.com
View Chart »There is a pretty clear head-and-shoulders pattern with a target of $43 to the downside if triggered. I only believe that price target would be achieved if USO pushed to $33 or slightly below. Still, momentum is struggling. I would prefer to see a selling tail to $48 with an immediate bounce in order to consider a long side play.

Otherwise, I believe you are simply guessing at a bottom. You are ignoring the tap on the shoulder and convincing yourself you are strong enough. You do not have to move out of the way of the market and she can't make you.

Pssst. She can, so be careful.

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