Tuesday, June 2, 2009
Onward and Upward
I noticed the SP500 broke out to a new high a couple days ago, accompanied by a nice pickup in the number of stocks Up on Big Volume.
All signs remain good. I could see a short-term down day or two but it will take more than that to kill this powerful bull market.
Some guys at lunch today were trying to figure out why the market could or would go up given all the economic issues and bad news. But obviously it is going up! That's an important thing to realize. The market does what it will, notwithstanding anybody's thinking or economic theories.
It can't be predicted on this basis. Even Warren Buffet says so. But surprisingly, we CAN determine what the market's doing with technical analysis, by analyzing price and volume patterns, and we can rely on the statistical tendency of a trend to continue trending, at least in the short term.
It has to be taken in the right context, with the right underlying assumptions. For example, things like moving averages are popular with novice traders to frame the price motion. But it's oversimplified. Really there's absolutely no reason why a given stock would swing with a given period, other than coincidentally. And it turns out that most every other trading system has some fundamental flaw too. There's very little that actually works.
So I favor a behavioral-based research approach, i.e., study how stocks and markets behave on a statistical basis, and see what if anything really does work. And what works is a context involving horizontal support and resistance lines, basing patterns, breakouts, follow-throughs, climax reversal days, volume action, and indicators like Accumulation / Distribution. We try to play things how they really move, instead of forcing the market into an arbitrary framework. If stocks are going up we get in. If the market starts topping out, and we see a pattern of leading stocks breaking down, we get out. If a stock's going to double, that's going to take a few weeks or months. How often do you get a double? Trading stocks short-term, for for peanuts, makes no sense. You can wind up selling a big winner for peanuts, and buying a dog instead.
The gigastockpicks and gigascanner web sites are dedicated to technical analysis of stocks and the market. There's a nice set of basics for free, or there's a minimal subscription charge for deeper research.
All signs remain good. I could see a short-term down day or two but it will take more than that to kill this powerful bull market.
Some guys at lunch today were trying to figure out why the market could or would go up given all the economic issues and bad news. But obviously it is going up! That's an important thing to realize. The market does what it will, notwithstanding anybody's thinking or economic theories.
It can't be predicted on this basis. Even Warren Buffet says so. But surprisingly, we CAN determine what the market's doing with technical analysis, by analyzing price and volume patterns, and we can rely on the statistical tendency of a trend to continue trending, at least in the short term.
It has to be taken in the right context, with the right underlying assumptions. For example, things like moving averages are popular with novice traders to frame the price motion. But it's oversimplified. Really there's absolutely no reason why a given stock would swing with a given period, other than coincidentally. And it turns out that most every other trading system has some fundamental flaw too. There's very little that actually works.
So I favor a behavioral-based research approach, i.e., study how stocks and markets behave on a statistical basis, and see what if anything really does work. And what works is a context involving horizontal support and resistance lines, basing patterns, breakouts, follow-throughs, climax reversal days, volume action, and indicators like Accumulation / Distribution. We try to play things how they really move, instead of forcing the market into an arbitrary framework. If stocks are going up we get in. If the market starts topping out, and we see a pattern of leading stocks breaking down, we get out. If a stock's going to double, that's going to take a few weeks or months. How often do you get a double? Trading stocks short-term, for for peanuts, makes no sense. You can wind up selling a big winner for peanuts, and buying a dog instead.
The gigastockpicks and gigascanner web sites are dedicated to technical analysis of stocks and the market. There's a nice set of basics for free, or there's a minimal subscription charge for deeper research.
// posted by gigascanner @ 6:48 PM 
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