SPY (@ 131.46) confirms rally to the upside (for now)
20 Jan 2012 2:35 a.m. EST I have been skeptical about this rally ever since the breakdown and attempted recovery from 115 in late November. In my last entry, I wrote that the resolution of the high, tight flag to the upside or downside would be critical and since then it has rallied to the upside, indicating higher prices in the near to intermediate future:
At a personal level, I must make a mea culpa since I did something I generally advise others (and myself not to do): ignore a simple system which on average beats the most sophisticated-sounding but complicated analysis.
A buy signal was issued in late December on the 4th-to-last trading day of the year. Yes, it was promptly followed by not just no follow-through, but a sell-off, so it seemed at first to fail, but then the market gapped higher, did not fill the gap and formed a high tight flag, then another. These are very bullish. I put less stock in moving averages than I once did (they badly lag market action but are helpful for confirming longer term trends) but the 50 day has crossed the 150 day which is another sign of a bull leg up. The offsetting bearish signals (weak volume, short-term overextension, weak fundamentals, nearby resistance) all scared me away.
So now the market is about 5% higher which may not sound like much but a mutual fund that beats another by 5% in a year is considered to be massively outperforming.
Live and learn. If you want perfection and regret not doing everything right, you simply cannot and should not be trading. Last year was net profitable despite a very difficult market, so there is yin and yang and I must admit I sleep better in cash and short term bonds!
So what to do now? It's late, but the signal probably should be taken here. I will start moving into the market in pieces myself - a pull-back at some point would be normal, indeed, it's absence would be strange, but I remember the 2003 bottom which I completely wrote off only to see the market march higher. The market is much smarter than any of us! You don't have to guess its next move, simply follow its last which is on average roughly the same thing because of the wonderful power of momentum (and the fact that the market at some level is reflecting an underlying reality of a recovering economy, and the market tends to rally BEFORE that reality becomes apparent in the news).
Again, a buy stop above the most recent highs will keep you out of the market if it suddenly swoons on bad news from Europe or some nasty international flare-up in the Persian Gulf, but will get you in at a higher price than a market order.
Or just stop trying to be cute, dollar cost average your way in over the next few days or weeks as long as the current buy signal is in place (placing your sell stop at 120.00 moving it up as the 20-day low climbs with a mental sell stop in the middle of the range, at 125.43 or so).
I will look at individual sectors next but for now missing this rally entirely may be the greater risk.
20 Jan 2012 2:35 a.m. EST I have been skeptical about this rally ever since the breakdown and attempted recovery from 115 in late November. In my last entry, I wrote that the resolution of the high, tight flag to the upside or downside would be critical and since then it has rallied to the upside, indicating higher prices in the near to intermediate future:
At a personal level, I must make a mea culpa since I did something I generally advise others (and myself not to do): ignore a simple system which on average beats the most sophisticated-sounding but complicated analysis.
A buy signal was issued in late December on the 4th-to-last trading day of the year. Yes, it was promptly followed by not just no follow-through, but a sell-off, so it seemed at first to fail, but then the market gapped higher, did not fill the gap and formed a high tight flag, then another. These are very bullish. I put less stock in moving averages than I once did (they badly lag market action but are helpful for confirming longer term trends) but the 50 day has crossed the 150 day which is another sign of a bull leg up. The offsetting bearish signals (weak volume, short-term overextension, weak fundamentals, nearby resistance) all scared me away.
So now the market is about 5% higher which may not sound like much but a mutual fund that beats another by 5% in a year is considered to be massively outperforming.
Live and learn. If you want perfection and regret not doing everything right, you simply cannot and should not be trading. Last year was net profitable despite a very difficult market, so there is yin and yang and I must admit I sleep better in cash and short term bonds!
So what to do now? It's late, but the signal probably should be taken here. I will start moving into the market in pieces myself - a pull-back at some point would be normal, indeed, it's absence would be strange, but I remember the 2003 bottom which I completely wrote off only to see the market march higher. The market is much smarter than any of us! You don't have to guess its next move, simply follow its last which is on average roughly the same thing because of the wonderful power of momentum (and the fact that the market at some level is reflecting an underlying reality of a recovering economy, and the market tends to rally BEFORE that reality becomes apparent in the news).
Again, a buy stop above the most recent highs will keep you out of the market if it suddenly swoons on bad news from Europe or some nasty international flare-up in the Persian Gulf, but will get you in at a higher price than a market order.
Or just stop trying to be cute, dollar cost average your way in over the next few days or weeks as long as the current buy signal is in place (placing your sell stop at 120.00 moving it up as the 20-day low climbs with a mental sell stop in the middle of the range, at 125.43 or so).
I will look at individual sectors next but for now missing this rally entirely may be the greater risk.
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