What is amazing is the number of people celebrating when the market hit the 1216.75 high. I remember watching Bloomberg and listening to some guy talking about 1300. The reason that guy gave was so way off, you saw dung beetles crawling all over him. I can only imagine what the comics at CNBC were saying. It was sad to see that these so called “professionals” would be so bullish.
I love the statement about people not being able to see past their noses. Really is the case when you try to understand why the market moves the way it does. Too close to the trees to see the forest. Oh and another cliché. Some people can’t think that far. Mind you, I’m not poking fun at you. Just trying to make you aware of a symptom. So lets figure out the all important question. To what force is price really subject to? Is it the long term trend or the short term trend?
The pop up to 1216.75 is a great example. People in the short term time frame never really understood why the ensuing sell off occurred. It was shear folly to expect it to go to 1300 from there. If your broker told you to go long. Fire him. If your trader pal said told you to go long, he isn’t as hot a trader as you thought. And if you thought that you should go long, you might be a red neck. If that is truly the case, you are blaming the government, because the news may have tied it to a government announcement.
The people who told you to go long or if you thought to continue to go long, failed to understand the trend all together. Failed to see negative divergences in the daily and the weekly. People generally see the price up and have no clue what is actually developing or has been developing. Then they are quick to blame anybody but themselves for their bad trades.
If you examine the daily chart, the daily was going sideways since early April to May 3. Since Aug 5, 09, the momentum to the upside has been fading. Distribution and negative divergence. What a nice combo!
Fat finger day occured, Issue 029 – Not A Glitch, discusses the technical merits of the move down. The real power behind the move came from longer term view.
Now look at this same action from a weekly perspective. Although the daily started in Aug/09, the weekly only started to confirm the lost of momentum in Oct 09. The progression of the relenting momentum, finally affected the weekly. And on that new high, you can clearly see the negative divergence, a new high on lower macd. The weekly continued to progress weakly as well, and then finally, affecting the monthly, who up until May was strongly bullish. Wow look at that monthly!! There is this trader in one of the chat rooms, who consider him-self as an authority, declared that an ascending wedge is bullish. If it is, then no wonder some people had such bullish expectations. In Bugs Bunny’s immortal words…”What a maroon.” Perhaps all these people went to the same funny mental school.
It really doesn’t matter if you are trading in the daily, weekly, monthly or 133tk, 1600tk, 15min or even 30min, 1hr, 4hr, the basic rule applies. The longer term trend always over rules the short term trend. In the same way a short term trend pops up after selling off and then retests the previous lows, so must a longer term trend. The only difference is that the longer term trend takes much longer of course.
Since the Mar lows of 09, people thought that the market moving up, in the strength that it did, could only continue to go up more. Hopium addicts wanted it back up to 1500. What explains the strength of the explosion from the lows? Would you believe an accumulation, clearly seen in the weekly is responsible for this pop up? Can’t see it? It started just before Dec 08. And the new low of Mar 09, finalized the move.
So here is what happened. People who’s vision can only go as far as their noses. Did not pay attention to the longer term trends, to see that the monthly reached a significant level. This level was established back in June 05. Wow that long ago? Yes!! We retraced back up to previous support we lost. Isn’t that the target of an accumulation? Of course it is! And as usual, we say that the shorter time frames, will show you the changes first. When did the daily and weekly start to put on the breaks? Ergo, failed to close above that previous support in the monthly perspective, end of move up.
You are always subject to the longer term trend whether you like it or not. The price can fluctuate all it wants so long that it accomplished the goal of the longer term trend. People can blame whoever they want, the government, the economy, the currency issues. The fundamentals globally had already set the technicals in motion. How can we avoid the technically inevitable retrace down to potentially lower lows than 09? Call everyone you know. And tell them to tell everyone they know. Tell your mayor, governor, and even your president. Help the economy in this way. Buy up this market in large quantities. Although this pop up to 1200+ was impressive, we did so on very low volume. This is the mathematical reason we are facing strong fat finger drops or “computer glitches”. There was no real bullish volume to offset the bearishness Change the picture en mass. What will buying en mass achieve? A new low or failed new low on more bullish volume. Resulting in….Accumulation.