There’s been much gnashing of teeth, many howls of pain and cries of anguish lately from my disbelieving fellow bears. While I am very much a bear at heart, my first allegiance is always to unbiased analysis of the realities of the marketplace. Therefore, in answer to those cries of pain and disbelief, I repost the following, which I posted earlier today on The Stool Pigeons Wire.
The Primary Dealer specialists and market makers have decided that they are going to crush the public and institutional shorts. Once they are done with that and have rebuilt their own short positions to the necessary levels, they will turn and re-crush the longs. Wash, rinse, repeat. As long as the Fed is providing the fuel, these guys will keep squeezing the vice tighter and tighter. They will get every last drop of bear blood. The Fed will decide when the game is over. And we don’t have a vote.
As I mentioned in IDS, in this kind of market my approach is to give greater weight to trend indicators and less weight to the ozzies until the market shows me that it really has stopped trending. 5 and 10 point pullbacks to the uptrend lines don’t cut it, and very few traders have the nimbleness of finger to trade against the trend in that way. Unless you have learned how to be successful at countertrend trading, be prepared to get an education.
I know that several of you have the ability and nerve to do it, but I suspect that most posters and most readers of this board do not.
I believe that TA, cycle analysis, and liquidity analysis, all go hand in hand. I believe that it is only possible to have an understanding of the whole scene by using all these tools. And for trading purposes, the only tool that is essential is TA. But you must understand how to use it.
Cycle analysis is essential in knowing when to rely on trend following indicators and when to rely on cyclical indicators for the time frames you are trading. Even though great traders may not use cycle analysis per se, there is always a time element inherent in their analysis. After all, moving averages are all about trends and time cycles. That’s all there is, and all that’s needed to trade successfully.
In strongly trending markets, short term cycle indicators will generate tons of false sell signals. That’s no problem whatsoever if you know that longer term cycles are headed up. In that case, you follow the trend indicators and the longer term cycle indicators and pretty much ignore the shorter term sell signals. As in reading and understanding a book, context is all important in understanding how to read the charts.