MARKET DIRECTION CALL
March 16 2011 - The Art
Of Being Wrong
My outlook for today was way off
mark. Talk about being blindsided! So now where is the
market heading? Looking at the chart it would appear the
market is heading lower before it can move up.
Technically a lower close today than yesterday's open
means we have more downside ahead of us.
Here is a longer
term view of the market. Today the S&P touched the 100
day EMA. A simple technical method that has been used
for years on the market is using the 20 day, 50 day and
200 day EMA. When the 20 day EMA crosses the 50 day EMA
the short term trend is down. When the 50 day EMA
crosses the 200 day EMA the longer term trend is down
and vice versa for market up calls.
Below is a 3 month look.
The 20 Day has not crossed the 50 day EMA but just a
couple more down days could give that short term down
trend signal. Does the signal actually work?
Surprisingly it is pretty accurate, but this simple
method cannot pick the top or bottom of a market, as
often, the trend has to become set before the EMA can
indicate a clear direction. The short term signals are a
little more inaccurate as sometimes in a choppy market
like last summer (2010) the signal was given twice of
market down and twice of market up. So being whipsawed
The problem the market
faces now is the Japanese disaster, Middle East
uprisings and the high price of oil. These three have
finally proved the market's undoing (notice how often
things happen in three's and I'm not superstitious) The
question now is, if any of these gets taken out of the
picture, will the market resume its climb? Short term
though, I believe the market remains in a downtrend. How
low is tough to say, but the 200 day which is around the
1210 to 1220 level on the S&P could be the first spot to
keep an eye on. Right now I am reducing the number of
put contracts being sold in order to keep some of my
capital available for opportunities as they present