Friday, October 05, 2007

Markets surges

Well, that was a surprise. Qs now at a new high on moderately increasing volume. Although some traders were inclined to fade today's gap Open, the fact that pre-market volume in the Qs was over 10M (as opposed to the usual 2-3M) strongly suggested that today's action might not be a pop and drop scenario. Trend followers made out like bandits today; SAR (stop and reverse) traders like myself got left behind as the rise showed diverse and pervasive strength. I got in a few early trades today (NDAQ, WYE and EK), and closed the positions in the last hour prior to the long weekend.
Yesterday I expressed the view that the Qs looked ready to reverse down based on technical signals. That obviously wasn't the case (one of the profound weaknesses of technical analysis) which I surmised as soon as I watched the huge Qs volume gap at the open. The trick to surviving when such things happen is to be willing to adapt to what the market gives you when you are expecting something entirely different, and while this sounds like an easy thing to do . . . it's not.
The current VIX bands look weird, to say the least. The VIX did retreat below the 10DSMA without hitting my 16DSMA target on this cycle, but technical analysis is a study of probabilities, not certainties. I don't trade VIX options, but use the VIX as a derivative indicator because of it's high negative correlation with the Qs. It was certainly unambiguous today.

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