Thursday, August 25, 2011

Trading Algorithm Update - August 25, 2011

Market: Bear
Defining Level: 1204
Trend: Down
Defining Level: 1285
4/8 Trend Change Confirmation (Up to Down): Yes
Current Trade: Long from 1130
Profit Objective 1: 1164                                                   Trailing Stop (closing): 1164
Profit Objective 2: 1197                                                   EW Stop: 1156
Status: Exited All Long  for 3.2% profit (Updated Close of Trading Day)
Next Trade / Model Based Approach: Pick Bottom in a few days
Stop:                                                                                  Risk: 
Risk Associated with trade: HIGH (Bottom picking in a Bear Market is dangerous)
Turn Window: August 23 (+/- 4 days) รจ
Market turned in the turn window
1-       Market bottoms in turn window
2-       Market tops in turn window
3-       Market double bottoms and breaks out
4-       Market double tops and breaks down
Observations:  Markets turned during the turn window. Pessimism is evident from surveys, growth forecast downgrades and news articles. It seems possible that either markets might continue higher into the Jackson Hole Summit (Friday) and test 1200 level, or Markets might have already topped out at 1187 (Thursday opening - close enough).  After the summit, we might see a “Sell the News” event with markets declining over the next few days. If the market can hold above 1150 then we will see a sharp rally above 1200 level. However, if the market breaks below 1150 (1130-1150 range) then we could see a new low. It will be interesting to see how investors respond to the upcoming decline (Buy the Dip or Short the market). Sentiment will be the best guide to identify market's course over the next few weeks. On the coming decline, we will re-evaluate the situation about whether to buy or to sell short.

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  1. Not sure if Bernanke can pull rabbit out of the hat and fix everything. The drama might go all the way to "job package" to be announced over the Labor day... it will be interesting to see what happens next.

  2. Looks like Ben did not pull a rabbit out of the hat, but it surely seems like markets have bottomed. Over the next few days, we will have a good buying opportunity till mid September (next FOMC meeting) rally.


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