<This is circular reasoning. TA is based on the assumption that "outside events" as well as sentiment ("psychological effects" as you refer to it) is reflected in market prices. So there is no use in gauging them separately and doing so would be double counting and may lead to wrong conclusions.
First I will clarify that when I am referring to "markets" I am referring to the NASDAQ, AMEX and NYSE (not the futures markets).
Personally, I consider the futures markets a field where T/A is applied in a "pure" form. The equities market there are strong influences from a fundamental analysis point of view, as well as technical.
Now...
There is no way any amount of applied T/A will "foresee" an unknown piece of news that can shake the markets in an important way. In my reasoning, (that you call circular thinking), such an event can be so important that will go opposite of what T/A was (up to that moment), projecting.
My understanding of the reading of charts (T/A) is that it is the "footprint of money” What it HAS done in the PAST.
From there, we attempt to recognize patterns, from prior history, and from there "make a projection". Such news/events... could NOT have been taken into account, simply because they have not happenned yet.
Likewise, I do not pretend that I can "see the future" of what I call the "psychological effect" I can not predict the future either.
This is the reason that I need to separate... what T/A has ALREADY taken into account. And what "possibly" be the different scenarios should an unexpected piece of news happen to "pop up" unexpected.
It is defensive positioning.
I attempt to ask myself: "what can possibly happen that would alter (otherwise), accepted behavior" ? Hence, in my case, the use of options.
Recently... we have witnessed a type of market that has defied even T/A Many times I have heard technicians refer as to chart patterns that defy all previous logic.
In my eyes, this entire debate about price levels can be reduced to mere excess demand over supply in specific stocks, originated by the amount of money that has entered the market in the las t 5 years or so.
Here... I include the ".bomb now gone" companies. I can not believe that any amount of applied T/A would have predicted the explosion in prices that we witnessed. --The fall may have been a different story.
I believe that we've already seen such a technical reaction and are now on a new leg down where the first target is a test of the recent lows. You can see that very clearly on the daily NDX chart where the recent pullback found resistance at the 20EMA as expected confirming the downtrend. I tend to follow the NDX instead of the COMPX because the NDX is what is actually traded and I've found technical signals on it to be clearer and more reliable than on the COMPX.
In responding to the post I did, I simply used the same chart and took it from there. I see your point here... I should have done a little more research before responding (by going to other parameters and analyze them).
My trading has been concentrated to equities and options of the same. (Except for a short time in the currency markets.) My experience in the currency markets was one in which taught me quite a bit, but it also showed me that I was not ready for the futures markets, yet. This is changing and soon I shall meet the challenge again.
I am considering trading some indexes... but so far, using options has been beneficial, so I am not too motivated to change this... Nevertheless, I am not shy to learn new things.
The question now is if we can make a higher low. If so then there's a chance that we may be able to develop a new trading range in the NDX 2800-3200 area. While a resolution to the election process may spark a short relief rally I don't see us making a run at old highs anytime soon.
I agree, and here is where you have helped me understand how these "new" trading range areas get formed. I tend to be an "optimist-realist" (unless the evidence proves me wrong)... then I become a "realist-optimist" [never a pessimist] -gg-
My point here is that if the election issue is resolved, I still see a substantial "fundamental positive points" to think a possible change of trend would surface.
Having said that, your point of...
I think that considering the tremendous technical damage that has been done it will take an extensive period of base building before there's any sustained move to the upside.
...is well taken, I see this concept clearly now.
And there haven't even been any number cuts yet for those companies. That's going to be the next shoe to drop. I believe that we may well be entering a period again where people are not willing to pay up as much for growth anymore as they were during the past two years.
Yes.... I tend to agree.... However I also believe that people will still continue to pour money into the market, simply because I can not see a better alternative, (for now), what I would expect to happen --again, once the election issue is cleared-- that the leaders will change... to what? I do not know, perhaps financials since interest rates now seem to be on hold, mere speculation on my part. Part of the reason why I think financials may become leaders is due to the deficit getting paid off. In this case BECAUSE of the very strong possibility of a gridlock in the government, i.e. no tax cuts, nor new spending will be passed, hence, the money machine (the taxpayers), is in automatic gear now and if the surpluses as predicted continue to build up, paying off the deficit will be the result.
This scenario does not take into account a considerable slow down in the economy, which could be a possibility.
It is my understanding that the rise in oil prices is not as much a function of limited supply of crude as it is function of bottlenecks in the refinery and transportation system. During the days of cheap oil there was simply no incentive to invest into infrastructure (new tankers, additional refinery capacity) and now we are paying the price.
Yes, I have heard the same... and in the same breath, I heard that for next year, there may be an excess amount of oil because a lot of it was not accounted for, since it was "in transit" . Not an expert at all here, I should research this more. Simply repeating my interpretation of what I have heard. I do know of a site where further research can be done, I will post it as soon as I find it (it is bookmarked somewhere).
In addition, the rise in oil prices is the result of the market reacting to a piece of news as we have recently witness it. such reactions sometimes are eventualy reversed. But the "anticipation" of the event is what many times causes the rise or fall of the prices.
After all it has been clear since election Tuesday that the political gridlock will be preserved no matter who will eventually take seat in the White House. Considering all that I don't see why any relief rally should be sustainable and not just another great short setup.
I guess here we disagree, since I consider gridlock to be a great positive. Time will tell us. (Assuming there is no coup d'etat in the US) -g-
The thought of Fidel Clinton dismissing the entire lot of politicos in Congress, sounds mildly attractive from a romantic point of view, (i.e. dismissing the current litter of hyenas), but hardly good for the markets -gg-
Contrary to the point you are trying to make those "wild jumps" is exactly why in the current market environment daytrading is a much more profitable proposition. There's a lot of very nice and tradable trends you just have to be willing to shift downwards in timeframe.
While I understand your reasoning, from the perspective of "not hold positions overnight". However, I also see it as an incredible risk taking trade. As an example I will give you last week in which reversals of trends were so quick and violent that at times, not that the trader would not be willing to change directions, but it became a matter of: a) the problem of slippage (time for execution), and b) the risk/reward relationship of the trade.
Style of trading comes into play here... It comes down to one's personal experiences and preferences.
In the current environment trend following (which is what I like to use, hence my use of the DMI/ADX indicator), becomes useless as no firm trend can be established, particularly since Oct. At least so has been my observation in the trades I have made. In addition, I have also noticed that if I let the trade "mature" they become more profitable, in other words, I believe I am better off looking at a medium term frame.
In my eyes, this is more of a personality of the trader than the efficiency of a particular technique. I am not afraid of trading under a down trading market; it is just that I find to be less efficient in a "jumpy market". |
