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Pressing the Probability Advantage

|Includes: Netflix, Inc. (NFLX)
Sentiment is a little too bullish and the Nasdaq, Dow and S&P are faced with double top resistance. However, the bull trend is strong and seasonality is bullish. Moreover, market internals are healthy here as leadership stocks continue to chip away at the upside and blue chips like Amazon and Priceline are catching a bid as they rise up out of buying bases. It takes bulls to make a bull market.

We typically pay attention to sentiment readings when the market indices are stuck in a range and trading at the range extremes. During bull trends it's usually a good idea to throw out all the overbought indicators as prices can and usually do rise further than anyone thinks they logically should. Likewise, double tops are very rare so trading from a contrarian perspective, it's usually prudent to trade against them as opposed to shorting a strong trend under the impression it will be turned back.

Remember, trading is about probabilities. The future is unknown, which is why we use stop losses. Using stop losses and pressing when probabilities are on your side is pretty much the only way to make money in the markets. If we are wrong, we take small losses -- nothing ventured, nothing gained.

Netflix (NASDAQ:NFLX): We promised to keep an eye on it as it reaches its 20-day average. It bounced off the 20-day yesterday, but volume was low and it still has a sell signal on its MACD histogram. Perhaps buyers will keep pushing here correcting some of the technical problems, but as of yet, we don't see enough positives here to buy in. The heavy volume on its recent correction makes us nervous, so we will need more confirmation before we will reattempt to buy this stock even though we continue to like its long term story.