The State of the Trend

By: George Krum | Sat, Feb 16, 2013
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In his book, The Big Short, Michael Lewis gives a vivid example of what negative effects a trader's psychology may suffer when somebody is right about his trade but too early in its entry, even though the end result is a big gain and a very fat profit.

Since the turn of the century, there have been several occasions when the outcome of certain market moves has been pretty obvious, yet many got burned by the unexpected longevity of such moves. To wit: the current rally, despite the negative divergences discussed last week, is still progressing, and the trend remains up for the three major indices (DJIA, SPX and NDX) in all three timeframes (daily, weekly and monthly).

In fact, taking the daily SPX as an example, the trend will remain up even if the index drops to 1470. For those who can't stomach a 50 point drop from current levels only to find out later that the trend has indeed ended, the index has drawn a clear support line at 1514 which, if broken to the downside, will signal that the long awaited correction may finally be under way:

SPX

Interestingly, from the point of view of of market internals, the SPX is going through a rolling correction which, at the current rate, will lead to oversold levels in two trading days:

CIT Dates

In practical terms, this is a cautionary signal regarding the longevity of the first leg of a potential downturn.

 


 

George Krum

Author: George Krum

George Krum
www.citdates.blogspot.com

George Krum is the author of the "CIT Dates" blog, and the following apps available from iTunes:

OddsTrader - uses the power of Hurst Channels to produce price and time targets, and combines them with proper risk and position size management.

OT Trend - helps you quantify and forecast the seemingly random ebb and flow of stock, index or mutual fund movement.

OT Fibonacci - automates the process of applying Fibonacci numbers, ratios and time series to any security.

OT Seasonal - allows you to perform seasonal analysis on practically any security from around the world and to build long-term forecasts and models.

OT Pairs - is the first mobile app that gives users access to one of the most profitable and time tested hedge fund trading strategies.

OT Pivots - combines the power of Pivot lines with cycles and automatic signal generation.

Gann 9 - is the only financial app that allows users to effortlessly apply the legendary W.D. Gann's tools and methods for trading (including the Square of 9).

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