Saturday, January 26, 2008

Qs Weekly Update

Upper chart is weekly 3 LRs study (30,11,3).
Lower chart is monthly bars of 3 LRs study.
As predicted last week by the 3LRs monthly study, the Qs came right down to 42, and then bounced back towards the mean. If the Qs can't make it back to the mean in relatively short order, then we're probably going to see a major trend reversal in the 3LRs and 36 will become the next dismal target for the Qs. Unfortunately for the longs, the MACD (5,20,3) in both time frames is decidedly negative. . .in the monthly we are just starting the plunge, in the weekly we are in rapid descent. Friday's unambiguous bearish action was a good warning that rallies are to be regarded with the utmost suspicion, until we get a definite trend change. The fact that home builders and regional banks have rallied strongly may only be the product of aggressive short covering. . .not long term accumulation.
This brings up another issue that I meant to address Friday, but feel it is really worth posting after I noted Dr. Brett's post today on taking a break, recharging the fuel cells and clearing the cobwebs from your brain.. Bottom line. . .you don't have to trade every day. In volatile market times like the current, it's probably better than you don't. I personally find the intradday market gyrations exhausting at times and become burnt out watching those 2 minute bars for an exit or entry signal. More than a few times I've just closed my open positions, or put in a close stop alert (I never use market visible stops), and taken a walk, or worked around the yard, or gone off and played golf. A very successful trader I know only trades a few times a month . . .he patiently waits for setups like Friday ( downtrending market, 2-3 days up, then a gap up at the open. . . .then he sells short all in with a close stop and a trailing stop. Also check out Afraid to Trade's excellent gap fade post.
My goal is to make money trading, but an equally important goal is not to lose money. Directional market timing is always a dangerous game because there are always deep pocketed market players with information, tactics and objectives that may be totally at odds with everything current technical analysis is showing. The global meltdown last Monday initiated in large part due to a rogue French trader is something that few risk managers could have imagined. Nevertheless, the effects were profound, dramatic. . .and costly. Maybe it's time to stand back for a bit, like Dr. Brett suggests, evaluate your current situation and consider if there's a better alternative. Like old Plato said, "The unexamined life is not worth living", and this holds true on many levels. Trading ain't an easy business my friends and anybody who says otherwise is a liar or a fool. And while there are a few folks who have a gift for trading, for most of us it's just plain hard work. Taking a break is not a sign a weakness, it's a sign of intelligence.

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