Wednesday, October 26, 2011

No reason to fight the trend on SPX

Unless Zero Hedge is your home page, you probably have identified that short-term trend of the market has been up. It is OK to try to pick a top with very small size and a tight stop just above the high, but fighting this rally in a big way from low on Oct 4 has not been a kind proposition for bears. I am continuously reading commentaries about how the market is going to hell from here. I have to respectfully disagree. If anything, SPX is simply overbought on short-term basis, and will reload at lower levels, if those ever present themselves. A very good momentum indicator - daily slow stochastic has been embedded in overbought since October 17th (thanks to Ira Epstein for teaching me this). There has not been a single close below 8 ema on daily since Oct 5th. If you are fighting these strong technical facts with all your might - you are about to lose your shirt. Just stop, assess the situation, try to identify the trend, do not trade what you think.

If you want to short, look for quality setup and add in the direction of the trade, set your stop and do not fight the trend once new highs are achieved. These trades against the trend (if you choose to make them) have to be quick, with multiple scale-ins and scale-outs, and stops brought to break-even after first target fill. It is very hard to do and requires a very good trading skill.

Preserve your account, live to fight another day!

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