I feel obliged to make some comment today. We are in a very uncertain time after the markets made a strong move on Thursday. There is question whether or not we have bottomed out. I see two equally strong arguments for either side. One camp, particularly from the fundamentalists or pessimists, is voicing for caution to believe the market has bottomed out. The other camp, which is equally represented by both the technical and fundamental theorists, said we have seen the bottom.
In my view, I believe the market has ceased to make huge drop, barring further unseen circumstances. We may see temporary stability for a while, perhaps until end of the year 2008. I wouldn’t dare say that it would not sink further but it is less likely for now and less drastic. This explains why I recommended some students to take Bull Put position yesterday should the market rally. My take is that the market will begin to drift sideways.
Remember, as technical trader, we don’t hold our opinion to death. We are opportunists and only act to profit from certain technical pattern. If the pattern changes, we change our views AND position as well. I deal with the present and do what is necessary to reflect the existing mood of the market. In order to make money, I need to assume a position, guided by the best information available to me at that time. If my projection is right, I make money; if I don’t, I lose money. That is as simple as that as a trader.
My current view is sideways. I am going to do what is needed to make money in this trend. I hope you do, too.
SPX Daily Chart
It is very obvious in the SPX chart that it bounced off the low of October. Volume was high and significant, making this rally solid and supported. It created a strong support line starting from the low of October. Based on the chart setup on Thursday, it may stop moving higher on Friday but it should not fall back below the support, at least for now. But then again, another day of rally is still possible. Nevertheless, the rally will be short-lived. Hence, trading in this turbulent time can be difficult. We will have a lot of uncertainty while the SPX is trading in range. All you need to remember is to watch the support and resistance lines and the RSI’s 40% and 60% lines.
The market has retreated quite a bit, or quite big actually on Friday. Is that what we call the Second Day Phenomena? It tried to rallied, but the final hour killed it