Welcome To The Rodeo

By: Erik Swarts | Wed, Aug 31, 2011
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Welcome to the Rodeo

Anyone that swims in the market knows that there is always a danger in bringing too much dogma to the table. Anyone that trades with very short time frames knows that it actually does not even belong at the table. You trade what you see - not what you expect should happen.

But like everything else in life, there are exceptions to the rules and I have been making them on a regular basis for the last six months.

Why?

Because the market telegraphed an increased in difficulty and started throwing trap doors on a regular basis. We entered the rodeo stage where you are either thrown off the bull and bled by a thousand cuts, a few deep cuts - or proactively anticipate the beast that is actively trying to keep you off balance and vulnerable to fall.

Here is another indicator that may color expectations with regards to those trap doors.

The chart below is of the McClellan Oscillator, which gives an indication of breadth. In essence, it is derived from advancing issues less the number of declining issues and presented as a ratio.

From StockCharts:

Think of the McClellan Oscillator as the MACD for the AD line, which is a cumulative measure of net advances. Just as MACD puts momentum into the price plot of a stock, the McClellan Oscillator puts momentum into the AD line.

To oversimplify the interpretation here for the current market, if the NYMO breaks through the previous high established on July 1st - there is a good chance that the market will at the very least give you an opportunity to sell at new highs. If the NYMO diverges from the July 1st high, it is a strike against the market and opens the late 2007/2008 comparisons where breadth continued to diverged from price. What the market has going for it here is the very short time window since the previous high. An eclipse of that level (granted - quite extreme +89) would be a step in the right direction.

2011 NYMO SPX

I included (once again) the market environment from 2007 - the last time traders navigated a bullish gauntlet of trap doors and surprises.

2007 NYMO SPX

 


 

Erik Swarts

Author: Erik Swarts

Erik Swarts
Market Anthropology

Although I am an active trader, I have always taken a broad perspective when approaching the markets. I respect the Big Picture and attempt to place each piece of information within its appropriate context and timeframe. I have found that without this approach, there is very little understanding of ones expectations in the market and an endless potential for risk.

I am not a stock picker - but trade the broader market itself in varying timeframes. I want to know which way the prevailing wind is blowing, where the doldrums can be expected and where the shoals will likely rise. I will not claim to know which vessel is the fastest or most comfortable for passage - but I can read the charts and know the risks.

I am not a salesperson for the market and its many wares. I observe it, contextualize its moving parts - both visible and discrete - and interpret.

I practice Market Anthropology - Welcome to my notes.

Erik Swarts is not a registered investment advisor. Under no circumstances should any content be used or interpreted as a recommendation for any investment, trade or approach to the markets. Trading and investing can be hazardous to your wealth. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This is strictly for educational and informational purposes only. All opinions expressed by Mr. Swarts are subject to change without notice, and the reader should always obtain current information and perform their own due diligence before making any investment or trading decision.

Copyright © 2011-2014 Erik Swarts

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