During the holidays, I read several books. "Too Big to Fail", "Meltdown: A Free-Market Look at...", and "America's Great Depression". All three interesting, but more importantly, all three have helped me to realize just how corrupt and broken our markets have become.
It is more and more difficult for me to trade comfortably with the knowledge that our government will do everything in its powers to intervene and prolong a false rally in hopes to avert (or pull out of) the current economic crisis. This includes open market purchasing of assets, including equities and rewarding our failing banks with free money to participate in the run.
For me, it is irrelevant that the Fed approach will only lead us deeper into crisis. It is irrelevant that the US runs the risk of defaulting on the world. It is irrelevant that we will ultimately go down the same path as Japan. All of it is irrelevant to me. What is relevant is that there is no way to trade this market. To go long knowing the facts is simply foolish. It is a house of cards. However, to go short seems suicidal.
From a technical standpoint, I no longer see a topping pattern. Rather, I see the SPX breaking out from the well established range and setting a new high. The same goes for the DOW and COMPX. It is time to lick the wounds and scale out of the position.
I have included the SPX 60 minute chart.
Note that we are at the top of an upward channel with a divergence in the RSI. I am looking for price action to reverse and make it's way to the lower trend line. Depending on how this move is made, I will begin to cover. I expect a retest of the prior range top in around 1120. I can only hope that we break below that level firmly and head to the 1096-1110 area. I will weigh my options at that point - but I will likely look to cover all of my futures contracts on the trip down and some of my equities at the bottom trend line - perhaps as much as 50%. I may at that time purchase some options and sell some puts - I don''t know yet, we'll see.
The reality is that this market rally has defied the fundamentals and to a large extent, made the technicals very difficult to interpret. To be frank, I no longer feel my skills are sufficient to place bets of the size and frequency that my style dictates. So I guess I am resigning in a sense, scaling out to reflect and determine a better approach - if there is one - for the markets.
I'd love to hear other perspectives.
Cheers.
PS-> My public resignation is supposed to give the all clear signal for the market to sell off!
7 comments:
Hi David ,
I agree that we have more upside here,
I can only see the pull back last week as wave 4 of C . and today was wave 1 of 5 of C .
As I feared for the last month , it looks like the four top mess was a Big ugly wave B . and I have been mentally preparing myself for an C wave the size of A 84 points.
1168 , and hoping for a c = .62
52 points 1142 ,
( ok really I was hoping for a .50 wave c ).
I have been hedging with , bond shorts , Nat gas and oil .
I may be out of my mind, I wait to see the end of 5 of C wave before thinking of tossing in the Towel .
Ps My worst case count , would move the start of wavec to 12/18 and not 12/8 , if that is correct than Thursday was wave 2 of C and today was a or was part of wave 3
Either way there is move upside.
( the only possible way we dont is if we have a ending diagonal,and I dont expect that .
I may be the most think headed person in the entire market , but we expected all hope of a pullback to be gone , ALL the bears to be
converted, to Bulls, and mom and pop to join in , I am not sure they have or have not yet.
I do wish you all the best , be careful out there ,
Cheers
Dave,
Accepting reality and cutting one's losses is aways a difficult but neccesary thing. We know too well. However somehow I feel it is more a timing factor than a fundamental factor in the market. Markets, just as in real life can be fooled some of the time but cannot be fooled all of the time.
And besides TA, because still some points are to be made for the bearish case, it can not be denied that part/most of the upward move is bases on free government money, marketintervention and "government backed" risk appetite etc. Adding psychology and sentiment we cannot row into the stream safely. However for some psychological reason I find it impossible to take big long positions.
Nevertheless I have decided that this market should correct imho and that my timing will be lousy as usual. So working with these 2 presumptions and working out a strategy is my way to try to solve the puzzle.
Finally one of the last fases as you know of a bull rallye is.....surrender;-) I'm close but not there yet.
David,
My heart goes out to you. Don't doubt yourself though, it's not just you, everyone may potentially get slaughtered in 2010.
Please check this guys blog, and let me know if you think he is oversimplifying things.
http://kliguy38depression2news.blogspot.com/
David,
It is amazing that one can get an honest idea of what the masses are thinking by interviewing 25 people. I do this through reading trader blogs.
Got short today and will get more short if we go higher tommorrow.
Hey Payline,
I have struggled to see the waves lately - which in and of itself is a concern. In terms of bears converting to bulls and the mom and pop crowd - this market is so thinly traded. You got the FED, main broker dealers, and a scarcity of semi-pro day traders. The average Joe just isn't a factor - nor will they be during the next year. There just isn't enough discretionary money and they've been burned one too many times.
Paulus,
I agree this market should correct. I've felt that way since 960. The problem is that it is the only game that the FEDs can play and they are playing without shame, full tilt. It is actually quite disturbing!
CBS,
Thanks for the link. The site seems to support the Austrian theory - highlighting the harms of FED intervention. In posts from last month I was critical of conspiracy theorists and folks who spoke of spcialists. I am starting to realize that government intervention is really not part of a conspiracy theory. It is in fact and overt practice, touted as a necessary action to save our economy. I don't know how to trade in this environment. Scary stuff...
Hey Nicasurfer,
It is safe for new short positions - keep in mind the range of the current up channel is a max of around 30 points. You can make some good money trading it smartly.
Thanks everyone for your comments.
Hopefully the market will have a sudden and total correction to fair value - overnight!
David ,
There just isn't enough discretionary money and they've been burned one too many times.
I think you are correct , and my guess is they miss this rally and boom/bust , but for there 401ks
The non preforming of the oil services , point to the burned once stay away from the gen pop. And we see crazy money in Bond Funds.
I recently began using Rsi , with EWT , it has helped me , ( I count the waves in the rsi and then look at the chart .) and I quite looking at anything shorter than 1H , or D , looking for the trend is most important now .
Good luck everyone
rimm=nok
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