Friday, September 18, 2009

What to do from here?

Well, I am excited, our second down day in 10 sessions. Thats what? less then 10 points down on a close basis after having rallied well, 80+ points. Being a bear is quite difficult =)

Now we did something very important yesterday - we filled the BIG gap we had from october 2008. I would have NEVER in a million years imagined that we will make it this far. If you had told me in march that we will be filling this monstrous GAP I would have told you to stop trading and put your money into a CD. I wish I would have done that =)

Ok now lets see what the market wants to do from here - as we all know down GAP fills are bearish, while up gap fills are bullish. I have always said that the market can easily be analysed using technicals after the fact. Here its one of those where we have to ask ourselves what we will be saying in a year from now - did we fill this GAP to continue with the big bear, or did we fill this GAP to go on our quest for new highs as part of a new bull market.

The strength over the past months have been anything but bearish, forget volume, bull markets are not based of volume but price (ok blunt statement but lets ignore that for now). Yes we are wedging, broke out of the wedge on the upside (which is bearish and indicates a reversal) however this does not look, nor feel like a normal bear market rally. Any bear market rally is filled with hesitance and swings back and forth. This did not occur here and we have had month after month with advances. The market is now setup perfectly for a double dip scenario, not to the march lows but to the strong support in the 880 range. Moving back to this range will actually be healthy and most likly mark the final stone for this new bullish cycle that may last longer then I would have imagined.

Yes I am still bearish overall - but there was an interesting comment I read the other day on Slope of Hope. Are we traders or are we economists?

As an economist in times of uncertainty you distance yourself, let the data and information play out until everything is absorbed and the direction has been decided. The economist will re-enter the markets once we can be certain that the decision has been made.

As a trader, well you trade the technicals and follow the trend. I always considered myself a trader but I have fallen down the road of mixing my trading with the information an economist uses to make decisions - why is that? Well quite frankly I am disgusted at how the public is being sold on the problems being solved when it is quite clear to us, who are exposed to the actual data on a daily basis, that its not the case. As a trader - I should not care about this? I should care about where the market will head tomorrow based on technicals. This rally here has taught me something else - my identity in relation to the markets. Whenever I put money into a short or long - am I doing it as a trader or economist? Well quite frankly, I did not do it as a trader during this rally. Time to change.

So in summary - ask yourself - who are you? What is your identity?

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