BEATING A DEAD HORSE
Are we heading for a decline? Possibly
Should we be selling with both hands? Maybe
Is this a market to chomp at the bit to fade? No
I know alot of people including trading colleagues of mine are really getting anxious about shorting this market. I question why. You can see from the above a setup that should look familiar now, a strong trend with momentum oscillators diverging against it. This is the achilles heel of these things and if anyone ever solves that problem I hope they are smart enough to keep it to themselves. It is very difficult to know when these divergences will actually tell us in a timely fashion, when a decline will start.
This is a sell setup for me in all honesty so I do have orders in to sell below yesterdays low and will also take the Q's and QID in my stock accounts if we get down there. I doubt we will. I am also already short a few individual stocks. I know in my earlier trading days I always wanted to fade moves like this and tried incredibly hard to find the best ways of doing it consistently. There are none. There is no doubt that at some point and it could be today or a year from now, that we will have some downside movement here. It could be substantial. However, you really have to be aware of momentum. Our oscillators can measure it for us and here they tell us it is fading.
We can also look at new highs vs new lows, which also tell us that momentum is fading here. However, price is the final arbiter, and it is unequivicolly telling us the trend is still up. We do seem to be potentially forming one of these rounded looking formations here which have often led to major tops, but it has not formed yet. I also think you have to factor in the greatest market manipulation of all time here into the mix.
Can you imagine what people would be thinking about all of Barry's tactics if the Dow were at 6,000? He would not have been able to pursue the F... you I won strategy to transform this country into Sweden. Yes the votes in Congress would still be there, but the public uprising would be way too strong and probably even violent for him to have pulled off what he is doing now. This is not an insignificant consideration. It is impossible to quantify, but also impossible to ignore. I think the practical application of it is just simply buy the dips and take profits aggressively on shorts, until we get such a strong trend break that it is obvious they cannot stop it.
Will it happen, who knows. I doubt it will happen any time soon. There are far too many socialist/communist things left to get done before they let this trade freely, if they ever do. Therefore I do suggest keeping short leashes on short positions. At some point we may miss a big move but the whole problem with every technique I know of from standard deviations, the regression to astrology, etc.. all have one big problem. All the entries at times run way too far against you before the markets ultimately reverse in your direction. It does not pay to have 5 losing trades in a row trying to fade something like this just to ultimately catch the exact top. All the testing I have done have drawdowns that are way too large to be practically traded. Some very good equity traders have been cleaned out trying to short this market way too early last year.
I wish it were different, and I also wish I would have understood the depth of the manipulation that was going on here earlier in the game. Even as someone who has been well aware of the PPT for quite some time, I had no idea they could pull off something like this. Fortunately for me I trade technically and even if I am dead wrong about that it is not a factor in my trades. This is really more just a general discussion of why fading big trends, regardless of what is behind them, is a tough business proposition. Whether it be market manipulation by some outside force, or just the sheer streng of a trend itself, the price patterns always look the same. They have persistence in price movement in one direction with very small retracements.
I do not recommend betting the farm against this market at this point