Tuesday, August 2, 2011

When to do the opposite?

I have written before about how when many traders want the same thing, it usually results in the opposite. We are at that specific moment as I type. SPX just closed below 200 dsma for the first time since 9/10/2010. Now everyone is on TV all of a sudden, and they are telling us how they all predicted it, and it is just going to die. Well, I just do not think so. While this was a very weak close, and by all textbooks you should not fight the 200 dsma signal, I really think that market is setting up to punish late shorts. Vicious short covering could produce a rally big enough even 200 dsma can not stop. I think that 200 dsma gets violated a few times on both sides. We eventually will go down to test 1200, but I doubt it happens in the next few days. I say we will see 1295 before 1200, just to confuse those TV heads.

UPDATE Aug 4 @ 4:10 pm
This was not the time to do the opposite :) SPX closed @ 1200 today.

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