Tuesday, July 5, 2011

The Fireworks Are About To Start.

The stock markets and the general economy are supposed to be correlated but in reality they are not. More so in present day environment where Government / external forces distort the market s. So while in the long run, we all know where the market is headed, in the short run trading becomes an obstacle as well as opportunity. However to make money in this market, one has to be more lucky than smart. Let us take for e.g the monster rally of last week. Apart from being oversold, and of course EOM as well as EOQ window dressing, there was no other reason for the rally. We all were waiting for the correction to get over and get long for the summer rally. But what has happened is a completely anomalous SPX rally and again the sentiment is on the other side.

My thinking is that the SPX moves in a wider range of 700 to 1450. What is happening now is simply a topping process. The risk reward calculations do not support going long for now as an investment. But if one is day trading, one can take advantage of the volatility and take position for a short term. At the end of the day, it is all noise, masking the big picture.

Looking at today’s price action and the price action for the last week, I get the feeling that what the market is going to do next is like a 4Th of July firework. Like a shooting rocket, the market will shoot high and then come down where it started. That would fulfill the requirement of the VOX reaching high 20s. From Technical Analysis point of view, today SPX body was completely out of the BB and VXO is the oversold level which normally triggers sell off.  After that, it would be a buying opportunity till end of August when the topping process will be complete.

The market rather the people who control the market (same people who never have a losing trading day) try to inflict maximum pain on maximum people. 1st they have broken the back of all bears and now sucking in money that are in the sideline and late coming bulls. Next it will be the turn of the bulls for slaughter, till a top is formed.

Till that time, be safe out there.