Sunday, October 14, 2012

Sunday Musings.

Friday before last, October 5th, SPX made an attempt of testing the high and closed at 1460. The mood was optimistic and everyone was looking forward to 1500+ very soon. This Friday , 12thOct, SPX closed little below  1428 and the mood is of doom and gloom! How things change in a week! Yesterday ZH ran a post promising below 600 sometimes in 2014. While it may or may not happen, (I have difficulty guessing what will happen tomorrow, leave alone 2014), there are other dire predictions floating around.

One such thing came from McClellan publication and we have to give it much higher credibility than ZH. Tom McClellan sent this following chart of Dow Jones 40 year log scale.

And it shows a peak sometime close in near future and a huge drop thereafter.

While I agree with this chart for the long term movement of the market, we need to be careful about the timing. While I am expecting a substantial correction after election, I do not think the end of the world is near yet. On the contrary, for those of you who have lost money getting caught up in the bear talk for the last four years, please pay attention. The 1sthalf of 2013 may present an opportunity to make money on the long side. So don’t start buying the soup cans yet.

We will take opportunities at every turn as they come but also keep a longer term picture in mind and not take any risk.

The coming week is going to be crucial in the sense that while the initial support has been broken, the secondary support at 1400 SPX level is still intact and we will find out whether it gets broken as well. Chances are we are going to see the bounce we were looking for as the short term cycle has bottomed.  We may not get the huge bounce and see the market chop around a bit till after OpEx but I think those last 15 days would be good for bulls.  On the other hand, if ‘O’  is going to lose, we will see a much larger correction. So we have to keep the options open and not front run. Not till October 24th Anyway.

I want to share a chart of dollar index from Jamie Saettele, currency strategist.

And the chart agrees with my reading of Euro that we will see a test of the high for Euro.

The 3rd issue of the weekly report has gone out today and readers will notice that more and more I am asking you to avoid taking risk and differentiate between investment and speculation. Loss in trading is a direct result of risk. So you have to ask yourself, what is your risk tolerance level and to what extent you want to gamble with your money. Sitting in a rocking chair keeps us occupied, but it does not take us anywhere. Same thing with day trading!

However, many of our readers are involved with options and short term trading. I will soon start separate pages for options and swing trades, may be as early as next week. Those pages will be dedicated to the traders and not suitable for long term investments.

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