Thursday 23 February 2012

Trend Following.

With so many pundits calling for a top, I am afraid that the top will be delayed. Market knows how to screw the maximum number of long and short.

From the hourly chart of SPX of today, it looks like back testing / revisit of the previous high. And if tomorrow it fails to take out the previous high of 1367, we can be surer that a top is in.
At least for today, the trend was not broken. The Advance Decline line bounced off the 13 DMA.
Best of technical analysis have given numerous top signals and sell signals so far. Some of the signals have been rare and with over 90% success rate in the past. But external liquidity has trumped over everything and in this Presidential election year, this is going to be the story for the rest of the year. In order not to lose money, I think it is better to follow the trend and not front run. With that in mind, from now onward I will be incorporating a trend table based on the various TA and mathematical formula. As the table starts from today, some of the columns have no data. I have selected the three indices, gold and silver and two favourite companies each from tech. sector and finance sector. It takes into account the closing price for the day.
As with everything, trend following is not perfect. There are whipsaws and quick reversals. But the losses are expected to be less and you can let the profits run. Also, it is to be used in conjunction with the overall market. Therefore, while the indices show long, it is a decision call whether to go long at this point of time when we know that the markets are over bought and can reverse any time. If you are already long, you may want to hang on. But if you are thinking of adding fresh long position, you may want to have a very tight stop loss. I will try to update it every day. Let us see how this works out.

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  1. ST top coming. AAPL 530; SPX 1380 or so. Maybe next Monday-Tuesday. Max downside I see is 1320 SPX.

  2. does it mean you closed you NDX short?

  3. Correction - 1380-1390. Probably closer to 1390.