Posts Tagged ‘wall of worry’

Wall of Worry

Sunday, March 6th, 2011

Where will the stock market go from here?  That is the big question on Wall Street these days.

A key number the market will want to honor is 1304 as a danger zone with 1300 as very troubled waters ahead. The market has been rolling full steam ahead since Thanksgiving last year with almost an uninterupted roll to the upside until lately.

The bigger volitility is a sign that things are getting heated up and the market will be expressing that through bigger moves one way and the other until a shift takes place. Many have recently become bullish and others are less worried about a bear market sell off than any time in recent memory. Both of those are a little worrisome, but the market has faced that “Wall of Worry” before as we have seen roughly a 30% increase in the market since last September, the last six months.

There is a lot brewing on the world seen, with the middle east heating up. The price of Oil is not going to make things easy for this economy as it continues to rise. A rising Oil market will make everything much more expensive and trickle through the economy in hundreds of ways that will not end up good for anyone.

I believe we will be seeing an inflationary environment in the months ahead. This is a big cause for the unrest in the middle east. The cost of food is rising around the world. If it continues, which I believe it will, we can continue to see trouble ahead with falling governments and unrest. There is a lot more to the story and one could really get into it, but I will choose not to and leave that for others.

There is always more than one way to see things from the way it is being portrayed. Being a trader we should be trained to see, look and notice the unseen before it becomes apparent to others. This thinking is consistent with many other area’s and world politics is one of them.

As a day trader, the current price of the S&P is a mute point. We should only care from a stand point of seeing a stable economic environment for all those whom it could effect.  From a trading point of view, it does not matter what the market does, up-down-or sideways.

That is the beauty of what we do. We should never be married to a direction or a position. Doing so will leave you in ruins. Just reading the current environment to establish what you should do is the way to proceed. This is the same as reading the newspaper, but for many, that paper is in another language.

In my trading for Friday, I did well to close out the week for another 5 for 5 gains. I have been grading myself  and always find ways to improve. Being a little short on time early on in the session did cause me to force my hand and try and make something happen instead of letting it happen and taking the ride.

These are just some of the area’s I can always improve on. The mental side of trading is a big factor. We should be able to identify healthy thinking or thoughts that should give us concern. If you talked it out, you may be better able to hear what it is that you are thinking and it may be a way to stop yourself if you find that you are going down the wrong road.

Recording your sessions with a screen recorder or through some of the tools that are available is not a bad idea. That way, you can go back and critic your trading objectively. This is part of the hard work that many traders are not willing to do. Others will not take the time to write out there trading strategy in detail and there work will suffer because of it.

For those who follow a trading methodology, say like mine or anyone else, that part of the work is basically done for you. The work still needs to be done in making that trading method work for you and that will entail finding your own style within that trading method.

It is key to learn price action first. Trading indicators are only a reflection of the price action. Trading indicators can be a good confirmation, but they should not be the main reason a trader takes a trade. Not understanding how this action comes together to provide you with strong clues in future direction will put you at a disadvantage. Learn this, and you put the odds in your favor.

Good Trading to all.

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Dow Jones Industrial In Position for New Highs on Year

Saturday, October 23rd, 2010

Today’s post is for Friday’s market 10-22-10, as we saw the market put in an inside day as it gets into position for new highs on the year.

Well, that is how I see it and the markets resilience in not letting up its bullish tone which has been impressive. I am sure it is making a lasting impression on the “Bears” who thought this market was done. The last eight weeks have all but took that crash and burn scenario to the grave, at least for now.

The Dow is sitting within striking distance on setting new highs for the year. Some will call it Alice and Wonderland, while others just don’t argue with fact. Price tells all, even if it defies all logic. Under all the news releases, their has not really been a lot of good news to push this market higher. This is truly the wall of worry, because I know their is much to worry about.

We all need to keep our minds open at all times. Many months ago, I called and seen the March 09 bottom, and by April had confirmation that the market was going to move up to exactly where it did. The first target was a little lower at S&P 1120, but later called for the new push to new highs. We did all of that and completed the move more or less as I thought. Once completed, I had in mind that the market would take some time to put in a top and we would then go down to retest the lows or lower. I am sure that is what a lot of people thought, but they did not keep an open mind as to the current environment. They likely only saw what they thought would happen and was not ready for what did actually happen. I could see in early July that the market was not likely to fulfill my early layout and adjusted my mind to see  and call the market rally at that time. Again, in late August was the big move that we are still in and I was waving a bull flag for some time right their at the bottom. The market could have tanked as many were calling for, but that was not the likely outcome.

The moral of the story is not to say that I am so smart, I could have been wrong, but to always look at both sides of isle. If we get so convinced that we are right about a market direction, it can embolden you to trade out of character. Risking to much on any one trade and over extending yourself can work, but it usually leads to a wipe out of some sort.

Market psychology can be a hard thing to understand, but it often plays a bigger part in market direction than most realize.  This ties in with the above, as at most all of the daily market turning points the majority have always been wrong. How do you not become the majority and think independently. Their are many ways, but understanding how market rhythm plays into the flow of prices is one way. Another way is think in the opposite way of the majority as market extremes are met.

I often report on “Investors Intelligence” weekly market survey of “Market Timing Newsletters”. We have been seeing a steady rise from a market extreme as of late August. This is one way that showed me that the majority was wrong about a large sell-off. I mentioned in Tuesdays blog writing that since Tuesdays market was a real downer, it was likely to take steam out of the continual bullish rise in the sentiment numbers. I was right, as that was the first decrease in market sentiment since late August. Every week since then has increased by just a little. Last week we were at 47%+ bullish and after Tuesdays close and the new poll taken, moved down to 45%, a neutral reading. This is going to give more room for an upside advance if the market co-operates.

With the Dow just under new highs for the year, a push up to reach that level is very likely. The thing about that is, the S&P is trailing and will likely offer some additional room their as well. From the way it seems to me, we continue the advance up and make slightly new highs in both index’s before we slow down and reverse back off this move. A new high in both index’s will get headline attention and all those who waited, will be kicking themselves for not getting in at lower levels. They won’t be able to handle a continued advance without them in it and will buy in at the very top, only to see the market drop and a whole new set of pain develop. So that is what I see and what I saw from the bottom. If things change, I will have to adjust that, but so far so good.

Today’s article is mostly about the daily markets, but the lesson in that is, don’t follow the crowd. Learn to think on your own and try and understand why and how the market moves. This is same for smaller time frame trading, which is what I do. I am a scalp trader by nature and like to not overexpose myself to the markets. Getting in at low risk spots to take what the market will freely give is what I like best. I do often scale out on some trades, but the power and momentum is on my side. When I loose the edge, I get out. If after entry, I start to loose the trading edge, I get out. Sometimes the trade still works out, but the price has to prove it before I re-enter.

Below is an equity chart of my trades from Thursday and Friday. I did struggle a bit on Thursday, but came back before I hit my daily loss limit and Friday was much easier.                                    Enjoy the rest of the weekend !

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Major Index’s Move up Sharply, to no surprise

Tuesday, October 5th, 2010

Today is Tuesday October 5th and the major index’s move up sharply, to no surprise as we saw big gains with the Dow being up 191 points and the S&P around +22 points.

Just a quick update on my trading today, as I did very well, but had a stumbling block to get over first. I was up against my daily loss limit, as I got caught in the 7 am West Coast flurry. I did not check for what news was coming out, so that is my first mistake and I did not get my automatic stop in place as the market went against me. Luckily, that was only a 2.50 point loss and not anything worst. So, I gave myself one pass on the mishap to try and come back and I did, all gains after that, for a combination of around 6 net S&P points and 10 points from the bottom. Chart below.

Today’s move was no surprise to me and I welcomed it. Yesterday, one level was broken and I pointed that out, as the second one that was needed to confirm held strong yesterday and even acted as a strong spring board as prices moved off the price I quoted to the tick and we have not looked back since that 1127 S&P low from yesterdays market. Today’s gap looked like it was not one of those that was going to come back and it didn’t.

We are likely to see higher prices in the days to come. As we broke above the long term weekly resistance that was so strongly established from years back. We will likely keep pushing on the uptrend for a while as we get closer to the election. I believe somewhere around 1220 or so was the numbers on the S&P I was looking for this year.

The market has climbed “The Wall of Worry” to a tee and I am sure their are many who can not figure this market out. It constantly does what they don’t expect it too, which is exactly my point.

If the market was always easy to figure out, it would no longer offer the opportunities that it currently does. So be encouraged, when you get their, you will be apart a very small group of people who can consistently pull money out of the market on a regular basis. The thing to do is, get their, easier said than done.

It is possible, to make it into that small group, but it does take a few things that could take you several years to uncover. That is what it usually took all the great traders of today to get where they are.

Is their a way to cut down on the length of time it takes? Yes, I believe so. So many traders go from trading system to system, always looking for what does not really exist. If you trade a trading system or are pursuing such your efforts could be better spent looking into how to read the market. Trading systems usually fail, where as a trading method is very different. Their is so many facets to learning market behavior that any and all time spent here is and will never be a waste of time.

If traders would learn about these three things, “Time – Space – Energy” and how that relates to the stock market, you will be miles ahead. Back to previoius point, trading systems will most often fail, because the market rarely stays the same. It can go through long periods of consistent behavior and then move on to something else. Constantly curve fitting parameters seems like it will work until you start applying it to real trading. If you don’t know why the price is moving (space) then you are only left to guess as to its next move. If you don’t allow for time into the equation, you will often be to soon or to late with your entries and you won’t know why. If you fail to equate the importance of stored energy, you never know how long and far the market is likely to travel.

Anyone who get a handle on the above three elements “Time -Space and Energy as it relates to the stock market, will be able to build for themselves a long lasting trading business that will not be subject to the common elements that cause traders to fail.

I do teach such these things in my course and mentoring program. This is not a big pitch, but it just is what it is.  Try and build your trading business or pursuits on a strong foundation like the one I mentioned above. Pursuing, something that will tell you when to buy and sell only, and that is the key, only, is not going to help you in the long run. You will be trading dependent, instead of independent.

Point yourself in the right direction and spend your trading time towards lasting solid trading principles.  If you need some idea’s or just want some free advise, email me, I will point you in the right direction. If you want more than that, then we can talk, but make your time count while pursuing your dreams. That way, you will always be inching closer and closer to fulfilling it.

Good Trading to all, Vince

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Daily Chart of S&P 500, What Do You See !

Friday, August 6th, 2010

Today is Friday August 6th and what a ride on the street today as we saw a big market reversal take hold in the last 90 minutes of trading.

At 5:30 a.m. eastern time, the market got a reason to sell off, as the jobs data came in worst than expected. There was hope that a higher than expected number would spark a rally, but gave way in the form of a let down. The selling could have been a whole lot worst, as the market shifted down a notch to a level of major short term support.

In the context of the overall move, we have not done any technical damage to the chart, as the market bounced right off of this major support. It does yet again, provide more room for an advance if in fact one shows up. The low in today’s market will be the line in the sand for now. Monday is going to be very, very interesting. If the market has it way and takes out say, 1106, just above the low of the day, I would bet that we will see lower prices over the next few days. There is upwards to 35-40 points under the market if the low gets taken out. So, that is the best way to forecast this market right now. If this, then that.

There is still very little bullish sentiment on Wall Street right now. This last week, the market sentiment data came out and it moved up to 38.5%. Actually, it stayed about the same, because last week, it had moved up a few %. Currently it is still very low and would be saying there is more to go. The market never moves in a straight line, or not usually, but for the time being, I can not overlook a break of today’s lows if in fact that happens. If that breaks, then, a big push to the downside is in order. It should be at least to 1084 and could be lower. The maximum I see is to around 1075 to 1080 and it could come in just a few days, but that is the maximum. There is major support at that level if only we break the 1106 area, just above today’s lows. I don’t think we have to break the low to get a market reaction that will temporarily send this market down.

With all of that said, the market sure showed some resilience, in only being down a few points after all the bad news and big drop. Some forget the wall of worry, of  the past. This may be like that, but this time, there is really something to worry about. All of our national financial troubles are really much worst than the mainstream media and government is letting on. I think the public senses that and is trading on there intellect.  Wall Street does not care how smart someone is, but only that they are in-tune with the pulse of the market. The majority is never right.

Above, I have a daily chart of the cash S&P 500 Index. I encourage you to take a quick look at it. You may see it a little differently than you normally would. I won’t go into it, but there is order in what seems like chaos. Knowing how to look at something is a start. I may post again on Sunday afternoon, but for now, enjoy the weekend and get outside and enjoy some of God’s creation. It can give a nice fresh perspective on life and our work.

As always, good trading, Vince.

P.S.  no trading for me today.  Relatives from out of town and have to many distractions

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Market to Climb the Wall of Worry

Thursday, July 22nd, 2010

This post is for Thursdays market and we saw a nice reversal from yesterdays move down, to better get ourselves in a position to move out and climb the wall of worry.

Yesterday I did say in a video I posted that we would see first 1080 and then 1085 just after the aftermarket trading opens up and that is exactly what we saw a high of the day when the market was 18 points lower or so with both of those targets hit to the tick. The natural flow of the market was for it to pull back yet again, to “create new pressure for the advance”. Well, that took care of the pull back and the new advance.

It would appear that we are ready for the market to continue on with this new rally that has just gotten under way now. A nice big trading day today with the Dow up 200 + and the S&P +23 and now more  expected to come.

I will have to cut my post off short today. I traveled to Portland Yesterday morning to visit my son and my wife and I are having a great time. Took a jet boat up the Columbia River for a full day excursion and it was great.

I will have limited postings for tomorrow, but will try and get my thoughts in for the weekend for sure with charts possibly showing how high we go from here. So look back over the weekend and I will try and have that updated.

Just before I left this morning for our outing, I did have enough time to trade, about 50 minutes and was able to take advantage of part of the move after the open. I came in following things just before 7 am and picked up around 8 S&P points, but did scale out along the way, still very nice and painless. Its nice to walk away knowing that you traded well.

Until my next posting, Good Trading to all.

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