Thursday 17 May 2012

Not Looking Good, But!

Definitely not looking good.  A 20 point sell-off is never good looking but it is looking more like a panic bottom. Question is, do we have sufficient panic for a bottom or more panic is yet to come.  If we do get a break down, we are looking towards 1100, so we have not missed much. Better be careful because on hourly as well as daily basis, SPX is way oversold. The following is Daily $NYMO

And the next one is weekly $NYMO

I am not sure how much lower we can expect the market to go from here. On the other hand, oversold can remain oversold for much longer. These are real danger zones. Volume for the day was well above average at 2.88 mil for /ES. It seems no one wants to hold the bag overnight. But Crude did not break down below $ 92.50 and showing a bottoming pattern.  Copper is refusing to break down below $3.45 and is oversold. Of all things, Gold and Silver bounced back almost 3 %. If Europe melts down tomorrow we can always join the party, but better not gate crash unwanted. At the same time, bottom fishing now is like trying to catch a falling knife.  Let us see how things develop for next few days.

Looking at chart pattern, I think this panic is just a teaser of what is to come, but before that we could have another huge up. My downside target as of now is 1280 but the upside target is 1420. I might be totally off my rocker but the risk and reward analysis does not support shorting here. We were short from 1410 and we got out at 1340. So we got most of the correction. Could we have waited? Sure we could have, but I wanted to protect the profit, take the cash and run. There is no best time to take profit and we cannot exactly time the top or bottom. As Joe said, 1st priority is preservation of capital.

We have to overcome our fear of “missing out”. I quote Joe Fahemi again: “95% of individual traders lose money over ANY 10-year period. Why? I could write a book on the many reasons why I think this happens, but one reason is their inability to sit out (trust me, I struggled with it for years). Many traders not only lose money by trading choppy markets, but more importantly, they lose confidence. Since 80% of anything in life is psychology, protecting confidence should always be a top priority for traders.”

The 1st rebound, if it comes tomorrow or day after, will fail. It is at that point of failure, we should decide the next course of action. I would give few more days for the panic to settle down and see where we are going.
I hope you are enjoying my posts but at the end do whatever is best for you. If you think we should short here, please let me know why. I am always ready to learn and improve.

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Thank you for reading


  1. Really enjoy your blog! Please consider adding your profile to this blog.

    1. Thanks. Will add " About Us" over the weekend.

  2. We should definitely not short at this point. Anyone starting to short here could have their face ripped off in a vicious short covering rally at anytime. Best to sit tight and wait as you have said.

    This blog is perfect.

  3. Was up 30% on my shorts and covered should have put it in a trailing stop,cant trust the fed,took. 2000 shares of NUGT this morning and caught a 12% gain,i think we bounce,i hope we bounce,if this was just the fed buying for this rally it could be stright down

  4. Do not have to jump, because the main directions miss this

  5. HnS target of 1293 achieved in futures....what do u think it can go down more from here

    1. Hi Jonak,
      H&S is not a very reliable indicator. Its success rate is less than 50% and you are better off flipping a coin to determine where the stock market is going.
      Given that, yes S&P has a possible downside target of 1280 but the cycles are bottoming next week and let us see where it goes. I do not see a huge drop as yet but the drop will come. I am expecting a bounce before that.

  6. Thanks for your calmness and sanity. Trying to sit on hands and wait.

  7. I really like this quote 'We have to overcome our fear of “missing out" '. I've working on this and it's now starting to sinking in slowly.

  8. Hi Kiwuji, Old_lefty,
    The fight is actually against ourselves.The day we realize that there will be many more chances and opportunities in stock markets and we do not have to chase every ball thrown at us, we will win.
    You are not the only one. I am also in your camp and I am also working to break that habit.Together we will win.