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What, Me Worry ? January 25, 2014

Posted by Tom in Thoughts.
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I know that the  market has folks in a bit of a thither, but since my main desktop computer has software “issues” and I’m working off a laptop, this may be just a bit shorter post than normal.  Back to normal next week.

So the media has everyone in a state of concern, which is good since the market was very venerable for well over a month now.  But is this the time to exit and expect a significant correction.  IMHO, no, not necessarily.  OK then, why is that?

First let’s look at the “terrible drop” (their words, not mine).  Since last Friday (US markets at / near highs), the S&P 500 down 2.6%, NASDAQ down 1.6%, EurEx (European composite) & China down 3.2% and Japan down 2.2%.  (granted the Japanese market is down more since its recent peak in December).  These are not “significant”, at least not yet.  And appear to be driven more by news than anything else.  (Some US companies are reporting stagnate earnings and China shows signs of slowing).  Let’s look at a chart: (click on it to enlarge)

NASDAQ

Price action did hit one of my “heads up” levels at 4311 on Friday and my Market Model did show a “potential sell” signal too.  My main stop level is the Wyckoff “significant weekly bar ” low-level at 4097.99; call it 4098.  That also coincided with a reverse trend line drawn in blue, that goes back to November of 2012.  Note it still is above the major T-L (lower purple line), which would be a significant sign of major market issues.  So, I’m looking for a close below 4098 before taking any major action here.  That could happen early next week.

As far as Price Structure is concerned, I’m having trouble seeing any major signs of Distribution here.  I labeled the early January time as a possible Buying Climax (bc?), with volume kicking up.  This week is labeled as an Up Thrust After Distribution (utad?); higher prices on lower volume.  But this labeling is rather weak in my opinion, to say the least.  That is the main reason why I don’t see this as “the Big One”.  I’m just not seeing the price structure to support a major correction right now.  Hey, I could be wrong.

I’m back to the old Alfred E. Newman phrase “What, Me Worry?”.  🙂   I keep in mind this market was waaay over bought and a minor correction / pause is in order, so no surprise for folks following this blog.  If you’re uncomfortable, buy some protection is the form of options, or bearish ETF’s (ones that go up when the market goes down).  This is hedging, and just think of it as buying insurance for your portfolio.  It’s not perfect, but it does cushion the fall until the direction becomes clearer.  Don’t lose sleep over it.

I expect Monday morning to be a sell off as weekend investors panic and sell at first light.  If we see the pros come in and buy, absorbing that volume / supply, then we know the all clear has been sounded.  If not, then it may be a good time to walk toward the exit.

All the best on this firstly weekend.  Take Care & Good Trading.    ………  Tom  ……….

chart courtesy of MetaStock; used with permission

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