A financial blog on investing in stocks, commodities and the gold bull market.
Monday, July 9, 2007
What a difference a week makes
I've gone over this before and I'll say it again TA can tell you with 20/20 vision what has happened in the past but it can't predict the future. Take a look at the first chart. It is pretty obvious the momentum is fading fast. This rally is just about over. The MACD histograms are contracting to 0 in preparation for the coming correction...right? Well lets take a look at the second chart :0 Wow who knew the Q's would surge upward again busting out above the upper bollinger band and momentum would start to accelerate all over again. The answer of course is nobody knew because nobody has a crystal ball.
I'm going to tell you right here right now how to write a very popular blog. #1 It has to be bearish. People like to hear bad news. Don't ask me why. I have no idea why we are hardwired to stop and look at the accident on the highway I just know we all do it. #2 You need to make predictions and if they are bearish predictions even better. Here's what happens to all of us and I've been just as guilty as anyone. We have a bias so we search out a blog or website that confirms our bias. Being able to see it right in front of us makes us feel more confident that we have made the right investing decision. Someone else thinks exactly like we do so that makes it right. The next thing that happens especially if you are a novice is we look at that prediction and we immediately start calculating our profits. Here's how it works. Well if such an such says the S&P is going down to 1400 and if I buy 20 puts on the SPY then I should make $$$... yeah that sounds about right. Wait a minute though if I were to buy 100 puts since I know I'm right and such and such is an experienced investor and its very unlikely he will be wrong then I will make $$$$$ instead of $$$. Alright now we're talking. I know damn well that exact thought process has gone through every ones mind before. I know it still happens to me and when I catch myself starting to think like that I calmly walk over to the wall and beat my head against it until I get that thought the hell out of there. Let me tell you what you should be thinking. Hmm...such an such is predicting the S&P will fall to 1400... Who the hell does he think he is? Jack off, nobody can predict the market. I'll buy 1 put just in case he might get lucky and if he's wrong which he most likely will be I won't lose very much of my hard earned cash. My suggestion is you view all these predictions and claims to be able to call market turns with a high degree of accuracy for what they really are...entertainment.
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T1. A move followed by a sideways range often precedes another move of almost equal extent in the same direction as the original move. Generally, when the second move from the sideways range has run its course, a counter move approaching the sideways range may be expected. T2. Reversal or resistance to a move is likely to be encountered: - 0n reaching levels at which in the past, the commodity has fluctuated for a considerable length of time within a narrow range - On approaching highs or lows T3. Watch for good buying or selling opportunities when trend lines are approached, especially on medium or dull volume. Be sure such a line has not been hugged or hit too frequently. T4. Watch for "crawling along" or repeated bumping of minor or major trend lines and prepare to see such trend lines broken. T5. Breaking of minor trend lines counter to the major trend gives most other important position taking signals. Positions can be taken or reversed on stop at such places. T6. Triangles of ether slope may mean either accumulation or distribution depending on other considerations although triangles are usually broken on the flat side. T7. Watch for volume climax, especially after a long move. T8. Don't count on gaps being closed unless you can distinguish between breakaway gaps, normal gaps and exhaustion gaps. T9. During a move, take or increase positions in the direction of the move at the market the morning following any one-day reversal, however slight the reversal may be, especially if volume declines on the reversal.
General Trading rules
G1. Beware of acting immediately on a widespread public opinion. Even if correct, it will usually delay the move. G2. From a period of dullness and inactivity, watch for and prepare to follow a move in the direction in which volume increases. G3. Limit losses and ride profits, irrespective of all other rules. G4. Light commitments are advisable when market position is not certain. Clearly defined moves are signaled frequently enough to make life interesting and concentration on these moves will prevent unprofitable whip-sawing. G5. Seldom take a position in the direction of an immediately preceding three-day move. Wait for a one-day reversal. G6. Judicious use of stop orders is a valuable aid to profitable trading. Stops may be used to protect profits, to limit losses, and from certain formations such as triangular foci to take positions. Stop orders are apt to be more valuable and less treacherous if used in proper relation the the chart formation. G7. In a market in which upswings are likely to equal or exceed downswings, heavier position should be taken for the upswings for percentage reasons - a decline from 50 to 25 will net only 50% profit, whereas an advance from 25 to 50 will net 100% G8. In taking a position, price orders are allowable. In closing a position, use market orders." G9. Buy strong-acting, strong-background commodities and sell weak ones, subject to all other rules. G10. Moves in which rails lead or participate strongly are usually more worth following than moves in which rails lag. G11. A study of the capitalization of a company, the degree of activity of an issue, and whether an issue is a lethargic truck horse or a spirited race horse is fully as important as a study of statistical reports.
Investing in the financial markets can involve considerable risk. Past performance is not necessarily an indication of future performance. The information included in The Smart Money Tracker and The SMT subscribers daily updates is prepared for educational purposes and is not a solicitation, or an offer to buy or sell any security or use any particular system. Information is based on historical research using data believed to be reliable, but there is no guarantee as to its accuracy. G.D.S L.L.C., nor Gary Savage, do not represent themselves as acting in the position of an investment adviser or investment manager for funds that are not under their direct control and fiduciary responsibility. GDS L.L.C., Gary Savage, will not provide you with personally tailored advice concerning the nature, potential, value or suitability of any particular security, portfolio or securities, transaction, investment strategy or other matter. From time to time, GDS L.L.C., Gary Savage, may hold positions in securities mentioned, but are under no obligation to hold such positions.