Friday, July 6, 2012

Why Waiting Is Worth It.

Everyday I talk of manipulation by TBTF banks and dealers. Most don't believe me but read it non the less. You might want to have a 3rd party validation of the rotten heart of finance here.

Yesterday I wrote that we have to be careful of various shenanigans of the manipulators and as we no longer operate in a free market, we have to be careful while shorting. If you have seen the price movement in the last few hours you know what I am talking about. You will also understand why I am not yet short. Yes, we are in the time zone and price zone but we do not have a confirmation of the intermediate term top yet. What if it is a bear trap?  

I am more cautious before jumping in to short the market when some very powerful men in the universe do not want the market to fall. I do not mind giving up the initial 20 points if that helps to get a confirmation and helps me to avoid whipsaw. One thing that is troubling me today is action of VIX. It closed the day with a -2.17% down, even with SPX down almost a full percent. As if the big boyz are not really worried now and they are just working out the extreme overbought level of NYMO. The selling was orderly and there was no panic or unusual volume. It is too good to be true.  So I have decided to wait for few more days to see which way the wind blows.

We will have a bounce from here. That is almost guaranteed. In fact it has already started. It is where that bounce fails, that will tell us if we can short with confidence. I do not want to take up a position today only to cover it tomorrow. And my downside target is 1200-1230. So I have lots of points in sight and I am in no hurry. Once again, it is not necessary to trade just because we are bored or ZH said the world will end tomorrow. Or emotions got better of us and we are afraid that we will miss the opportunity.

In the morning when the market plunged, I am sure many of you cursed me for waiting and wasting time. But I would rather err on the side of caution. There will be many more trading opportunities, but if we lose our capital, we will not be able to catch those opportunities. That is my trading / investment method and I want you to understand where I am coming from. If I am not sure, I will not take a trade. Nobody can win all the time, but at least let me try to reduce the risks.

Coming back to the market, I think we will see two things. To start with, they will kill the bears 1st, so that when the time to short comes, there will not be anybody else left except the BOYZ.  This objective will be achieved in the next few days and along with that there will be technical confirmation of buy signal to bring in momentum chasing lemmings. Those folks will get killed next. In the process SPX may well test 1380 or higher soon. The reversal from 1264 of June 4 can be considered a wave 4 and will end in 3 push up where the 3rd push may or may not make a new high.  That will be my cue. It is all coming to an end and those who are patient, will win.

 Thanks for bearing with me and reading Please join me in Twitter (@BBFinanceblog) and do re-tweet, post it on wall and share with your friends and circle if you like it. Hope it rains over the weekend. It is too hot here for doing anything. Your place better be good. Have fun folks.