Pivot Day

Wow, you didn’t think I would be back here so soon did you. Well, me neither! haha.. but traders being traders… creatures of habit in a way. But why I am back is because, there are certain pivot points that have been reached.

You could say the US markets are pissed off. If you look at the broadbased selling that came after major retail stores announced profit warnings, you’ll see it coincides with Paulson’s speech. Already jittery, the market was clearly pissed with what he said. The story? The government bailout package was said to buy toxic assets back then. When the plan was brewed, that was the whole idea. So now the market wants an update. Paulson came out and said, well, we are not gonna buy those toxic stuff. We are gonna inject them into areas where it is needed, like the FIs. What the market ‘hears’ is “we are not going to do what we said we would do back then. We will do something else, and we *think* we know what to do, but we don’t know where, and when yet”. And that, ladies and gentlemen, totally pissed the market off. You can imagine the air was filled with “WTF!” and knowing how market HATES these sort of uncertainty and stuff, to me, the sell off wasn’t as bad as I would have expected. But that’s the thing. Is it the end? Or do we see round 2 coming up later? The US markets are at a VERY important pivot point. The S&P trading at its last low of 840 and this support is critical. Breaking this low, implies 768 or so, set a long time ago. To put it into perspective, 840 relates to 1450 on the STI. 767 equates to 1200. These numbers will mean more in the chart below. So question is, is the market gonna crack that low and start a next round of sell downs, or will it be supported, or will it pierce through, fails to confirm and rebounds in subsequent days to recapture that support line?

So here is a look at the STI. If we expanded the time horizon, it would look somewhat like a symmetric triangle but it isn’t really a nice one. What we do seem to have now is a Lower High, and a Higher Low. That is all. We have a nice uptrend line and this is important folks. Combine it with the fibonacci levels and you’d see the 1755 level which represents 38.2% would be quite important. Would we break the trend line today? And if we do, will we recapture it? If it does hang around there, and rebounds upwards, personally, it is my zone for entering some ‘tikam’ long positions. Tikam means tikam. Just to ‘gamble’. On confirmation, long even more. Sometimes I like to take that chance. It is not a real gamble per se, but I would be taking a calculated risk, based on conditions prior to confirmation. It could fail, and if so I will have to cut the positions. Therefore tikam positions are small, else my profits would be wiped out easily.

Where do we go short? I would like 1650 to crack on confirmation. It may have a limited downside move, but what I look for is certainty. At this point, I am still holding onto my neutral-positive bias opinion. The retracement is not unexpected but there are certain indicators that suggests we are not gonna head straight down in 1 straight line. Wait hang on, isn’t that obvious anyway.

The monthly chart is interesting. Look how nicely the fibonacci capped price movements even before the bull market was halfway through. Q1 and Q2 of 2008 eventually saw the formation of the bear flag, which led to the massive plunge. Now, look at the chart, and tell me something. Buy, and hold forever? 1785 is a critical level. That was last around Q1 2004. You would be breaking even right now. Ultimately, you can see where I think the STI is being supported at.  If it ever falls to 1200 and stabalises, this is where I would start bottom fishing. But I am using proprietary analysis and techniques so I urge everyone not to follow everything exactly. This is because, the levels may be hit, but if it trends sideways, buying in Jan and buying 11 months later in Dec means a lot of difference. We’ll see what happens. Hopefully we will never have to break 1200, else we may see that dreaded 800 again. If that happens, perhaps, I won’t be posting here and you won’t be reading stuff. There are lots of people who underestimated stuff. For me, nothing really surprises me. I think I have been shocked numbed! So let me say it again… look at the chart, and say “Buy and hold forever”? Bullshit! Know when to buy, know when to sell. Problem is, everyone tells you that, but did anyone teach you when to buy and sell? Ahhhhh….. How many sold when STI was 3900. Not a lot. I wasn’t one of them. But I do know of one or two, while another three or four let go in Dec just like I did. Honestly, you gotta be able to stare death in the face and not cry. Look at the huge drops on the monthly chart, 3 huge black candles. Has it happened in recent years? Not at all. That’s what I call, a tsunami.

Did I go back into the market today? No. Do I regret covering all the shorts yesterday? On hindsight, yes. But in reality, no. I have been working on this hindsight thing. And I think it is changing me in my personal life as well. Hindsight is human nature, yet in my opinion, one of humankind’s greatest enemies. It robs us of joy, happiness and whatnot. We remember what we could have acheived on hindsight, and we term it opportunity cost. But we forget those days where on hindsight, if we didn’t do what we did, we would be in hell lotta trouble. Human nature. And it is this hindsight thing that helps create the charts, and it charts the human psychology in the stock market. Why are there double bottoms and tops? It has a lot to do with hindsight. Something we had, still have, and will never go away. But I prefer to be more disciplined, rather than to use hindsight and hope. I think I have to thank Jay a lot for this, with his constant encouragement when I lost money and constant reminders to stick to plan. Many a times we all have a plan, but how many of us can really stick to it in the face of a tsunami? Not many honestly. What have I achieved? Hindsight doesn’t bother me for long. A mistake is a mistake only if one sees it as so. What is more important is to look out for opportunities in the future and not miss them. There is nothing one can do to turn back the clock anyway so why dwell on it. Hindsight is always perfect, and the world is not perfect. These 2 are contridictions. Using hindsight, I would have been a billionaire, and so would you in the stock market. Right?

I reinforce this point to my friends. What sets one trader apart from another. It is not TA. Everyone can learn TA and know the stuff. But to put it into action, that is the tough bit. I rather focus more on psychology, rather than charts and TA itself. They are useless if you are not able to control one’s emotions to act accordingly. All of us know the rules, and what to do and what not to do. We can never follow 100%. After all we are still humans. But it can be mitigated through risk management, and discipline in following stops.

So much for now. I will share what I will be doing today. This is normally ‘private’ info though.

At 4pm I am gonna assess the market. What I see from it will determine if I am gonna open some tikam positions. Let’s face it. If the bottom cracks, all bullish divergences are void. There is this one thing which I use but is hard to explain, and it is my contrarian mindset. Too many people think it will rally, it won’t. If it does, it normally turns out to be a bull trap. Dead cat bounce. If things are too bearish, the market will somehow ‘correct’ itself to flush out its weak hands (mostly short sellers in this case) and rebound instead. It is not as simple as ‘buy when others are selling, sell when others are buying’. I have frankly, NEVER seen people remember quotes from the bible as well as all these stuff from the FA books. The stock market is either a sanctuary, a church, or hell, it seems.

Stay cautious. This market is violent. And is in the process of killing bulls and bears alike.