Modern markets try to burn everyone before they launch definable trends. My friend Bo Yoder calls this action a "rinse job." Whether through manipulation or mechanics, price gets drawn like a magnet through common support and resistance levels. This whipsaw movement cleans out the stops before a market ramps higher or lower. Not a pleasant experience when you're caught holding the bag, but an excellent opportunity when you come off the sidelines.

How does price action "know" where the stops are hidden? The answer is quite devious. Retail traders are well-versed in the basics of technical analysis. They take positions using common methods already deconstructed by the smart money. The result: Price passes through support and resistance far more easily than in the past. But keep your chin up. Whenever someone comes up with a new way to take your money, they also give you a new way to make it.

Let's look at failed failures on several stocks we've discussed in recent weeks.

We made the case for a bounce play on Concord EFS (CEFT) on Dec. 10. Using the intersection of two key Fibonacci retracements, we suggested Concord would reverse near $29 and start a run back toward its high. But things didn't work out that way.

 

Four days later Concord gapped down through the entry target and made a mad dash to the 50-day moving average. It tagged it early in the session and reversed, closing back above $29. The next morning, price gapped above the entry target and completed an "abandoned baby," a significant one-bar reversal pattern. Concord then rallied to test the old high.

Fortunately, the gap down should have kept swing traders on the sidelines. Most effective trading strategies limit entries after unusual gaps. But those already positioned had stops in the middle of that rinse job because it looked like a safe level on the price chart. There's a diabolical trading lesson here: Safe prices are also the most dangerous ones. How twisted is that?

On Nov. 8, we looked at Oxford Health Plans (OHP:NYSE - news - commentary - research - analysis) and made the following prediction: "The intraday bars of the last two trading days draw a bullish pattern that looks close to breaking out."