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Risk/Reward
By: Erik Swarts | Wednesday, November 14, 2012
As
expected, weakness has continued in the equity markets this week.
However, based on the NDX/SPX topping comparative that I have been highlighting
over the past few weeks, the downside exhaustion-proportional equivalent
of the pattern is ~2525. Considering that the NDX finished today at 2531.87,
the risk/rewards for continuing to press shorts here is weak. Based on
this comparative, risk will shift to the upside in equities through the
balance of November into December.
I would estimate that the downside risks for the NDX could extend in the short-term
to the zone of the June 5th/6th gap.
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.
