The NDX and Random Musings on Picking Bottoms:
Today, I was deluged with people telling me that they were stepping in to buy at these “rock bottom” prices, but I said nothing, as I have been on this big rant against asymmetrical thinking for some time.
We must ask ourselves this: If it is correct to buy every dip in an uptrend, why is it not correct to sell every bounce in a downtrend? Buying every bounce in a downtrend is the same as selling every rally in an uptrend, if we think about it. Need I say more? Here’s a piece I wrote on the psychology of trading: ispeculator.com
We have said for a long, long time, that the NDX is the only one of the three major averages that has not tested the spring lows, and given the amount of bottom picking that we’ve seen over the past couple of weeks, a dive into the unfulfilled target of the rising wedge pattern seen on the daily chart will have the effect of making all these buyers capitulate and hurl in a big, big way.
And maybe then, and only then, will there truly be a bottom. The market is a cruel place and punishes those who do not trade with the trend. In addition, even if a bottom is made here, or in a few days, it does not really matter, for it may not be able to dust itself off and go on in its merry way as people seem to expect, after all this damage is done.
In our own once-frothy Canadian speculative markets, with its parabolic stocks du jour, often, after the rise and fall, comes a period of months or more where bases are built again. Don’t forget, these stocks are not what they once were, even a year ago, given that the public float has increased dramatically supplied by splits, while paper from insiders and brokers have all been “distributed” to the hungry public. In the end, price is a function of supply and demand.
Teresa |
