Friday, January 30, 2009

IT Update

In my last update on Jan 9, i had said that we would visit the 850 area and then i will reevaluate the next course of action depending on the price action near the 850 area.

We tagged the 850 area and after a brief consolidation between 810-850, much to my surprise we broke out above the horizontal consolidation, pushing the hourly trend up, while the daily still remained on a sell. And we gave back all that gains in two days pushing us back into the horizontal channel, confirming a failed breakout. Now everything is back in harmony - hourly, daily and weekly are all down. So to keep it simple, the next bounce on the hourly is a short.

The raging discussion these days is the amount of sideline money that will start a rally from hell !. Well if there was so much sideline money, what's this distress in the global economy we are talking about ? Why this drastic slowdown in consumer spending ? Why these massive foreclosures ? Maybe all these problems are related to the sub-prime of the society - the poor suckers. There must a section of the society totally unaffected by all these, waiting with of wad of sideline cash to throw into the value that this market has created. Bring it on - we need ya !

From the book The Plungers and the Peacocks

During the 30s

There was this businessman who was highly profitable during the boom. Several months before the crash, he had the intuition to get out. Even after the 1929 break, when his stock had fallen to ridiculous levels, this man still felt its price was too high and refused to nibble. But then, it tumbled to the point where it was providing an 8 perecent yield and he bought a heavy block of it. He refused to have any truck with margin operations. The price continued to slide and the stock skidded to a level where it was yielding 12 percent. Then, and only then, did our man think to take on another big block of stock. The stock continued to fall and twelve months later it was yielding 20 percent. Having no more margin to put up, he was sold out by his bankers.

Such is the reality of value investing in major bear markets. Now let the value buyers chase the market all the way down. I will keep repeating this. We have broken the cycle degree channel from the 70s. A cycle degree bear market will not leave a section of the society unaffected, creating a value buying opportunity for miilions. Rarely does a secular bull start with millions riding on its back. There's just no wall of worry for a bull to start here. There's only hope - like the TARP, the bailouts, Obama, Fed, Bad bank, sideline money et al.

This is not an investment environment, but a trading enviroment. As for trading, there's nothing much to say - short the next bounce on the hourly.

Good luck trading !