Saturday, April 25, 2009
Finally I have my head cleared up
Recently I got too confused by the market and strayed away from my normal routine. Then I went back to John Murphy's excellent book on technical analysis (of the futures market) and I am now calm as I should be. The opportunities in the stock market are not always there and it is very easy to get frustrated waiting for opportunities to emerge. Forcing myself to trade has always caused me problem. Nontrending market or trading against the prevailing trend is always dangerous. Evan when you are right, the whipsaws will kill your performance. Anyway, I took some time today and did some charting. I will make this a regular feature of my blog, updating the chart every now and again when the market deems necessary. The long term trend is still negative. So, we are in a bear market for sure. On an intermediate term we have just broken past down trend, so we are in a quasi-bullish domain. The short term is definitely bullish although the rate of ascension has decreased a little bit to more realistic rate. In such a market, you want to buy on the pullbacks to the trendline and/or above the resistances, but each buy has to be based on confirmation from the action on the volume. Since the trendline is really pushing against the resistance at 880, I think buying on the pullback is more risky and I am not going to participate in that activity. Most likely we will move upward and meet the resistance sometime in May and depending on the economic news we may start the anticipated leg down or move up and test 1000. So, we will get our share of the move up if that happens. Participating in the down move is much harder at this level. We have to wait for a break through a strong support at 800 level. But if we do, then we might even take out the 660. The economic news as well as political news has to be really dire for that scenario to play out. Obama seems to be very wily character and manages political fallouts quite well. So, I am not looking for another leg down anymore. The big guys also looking to make more money on the long side so they should keep the shares afloat by whatever means necessary. ALWAYS TRADE WITH THE PREVAILING MEDIUM TREND, WHICH IS UP-BIASED, NOT REALLY CLEARLY UP!!
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I too think the intermediate trend will emerge after releasing of the stress test results. I was a little too eager to jump in.
ReplyDeleteIn the intermediate term, the market is way too overbought so I am somewhate hesitate to go long in May.
With the triangle = upward line meeting a horizontal overhead resistance, usually the trend continues if the volume has been cooperating. But in the present case volume has been erratic. So I am not sure how much more there is to go in this rally. Obama administration is seeking another stimulus package since the previous stimulus was not large enough to get his social agenda items funded properly. Reality check: If the market does not tank they are not going to get it. So, are they going to manufacture a crisis? I don't know. But if they create a crisis then there will be a political price to pay for the perception of incompetence. So they will have to think carefully before manufacturing a crisis. Now without a crisis no other money grabbing programs such as health care reform will get through congress. So, I bet they will create one to get money for the health care reform. I would think the window of opportunity for them will be early summer. If they don't do it then, they can come back in September and try again. Early summer and September are when people are most vulnerable to fear because of yearly cycle of jobs/schools/life in this country. If not, then they will have to wait till next year. But mind you without a crisis Obama is not getting his health care reform. That's the way politics works - if you inject enough fear in the population at the right time then you will get what you want. Bush used September of 2002 for Iraq war. Clinton's mistake was not picking the fear tool in 1993. He never quite figure out this mode of governance. Obama learned this from Bush last year and successfully used it this year.
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