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Where’s the Risk ? January 25, 2013

Posted by Tom in Thoughts.
Tags: , , ,

I remember an old trader asking me “Where’s the risk, at the top of the market or the bottom?”.   I had to think about this . . . surely if the market has fallen very much it’s in terrible shape, but then again . . .

The correct answer is that as markets go up (editorial: especially without a correction) the risk increases.   Unless of course you are from the camp that markets only go up; if so,  have I got a deal for you.  🙂

Last week I talked about many of the indicators that were bordering on euphoria.  Heck, darn near everything was up !  And this week was great, right?  In the 4 day trading week that ended 1/25/13:  S&P 500: +0.71%; NASDAQ Composite: +0.21%.  What concerns me is the press that this rally is getting in the TV and radio media: “Stock Market at Multi-Year High” , “401k’s Gaining Back There Losses!”.  OK that’s factual right but we need to see what this market does during some type of correction (lower prices).  That will be a good indicator as to whether this market rally “has any legs”.

What should we be looking at?  A few things.

NASDAQ Composite Index

I spotted in my current Support level for the NASDAQ Index at (about) 3076.  Lower than this gets my attention.  Also a few price channels.  Line ‘A’ would indicate a minor pullback if it holds; “no worries” here.  Line ‘B’ is what I feel is a likely scenario and raises my antenna a bit more, tho the 3076 level is also important.  Breaking the heavy line ‘C’ would likely mean a change in character for this market.  At that point my exit prices for my stocks have likely been hit and I could be slightly net Short the market.

I’m not predicting here . . .  just concerned.  Note the red down arrow at the top of the price range; it is a narrow range bar with the open and closing prices nearly the same.  If the volume on the bar was abnormally high . . . I would MUCH more concerned.  But it’s not (that’s good).  So don’t worry about Apple, it’s too late.  The smart money is waiting for it to form a base then thrust it down one more time before they buy it again.  The idea is to scare the Hell out of the weak hands (if they haven’t been  already).  The risk was at the $700 level, it has lessened at the $440 level.  But “Wait for It”.

“Where’s The Risk?”  An very important question.           Have a good week.       ……….  Tom  …………


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