Saturday, September 12, 2009

9/11/2009 - SPX update

The SPX made a new high yesterday at 1048, but it is still confined to the rising bearish wedge as seen in the chart below. Based on the strong uptrend of the market, it is best to stay long at this moment until the trends suggest otherwise. Notice that the SPX has risen above all EMA resistances, indicating that there is much more upside left.

Contrary to what most believe, I don't think there will be another crash coming this month or October. Not only is it just too predictable, there is also nothing in the trend that would suggest a crash of any kind that's coming. This is the prime example of why understanding fundamentals/reading the news has little to do with making money in the stock market. I am deeply concerned for the future of our country, and I understand the actions taken by the government/federal reserve will only delay the inevitable destruction of the USA. However, nobody knows when the fundamentals will actually hit the market. It could happen tomorrow, or in 2015. The point is you cannot predict the top accurately and sell all long positions and go short immediately before the crash. But you do know the trend, which is up at the moment.

By following my strategy and going long in April when the 20 EMA crossed the 50, you can see that the trend has stayed up this entire duration, and the only time it came close was during 7/8 - 7/10, when the market was about to break down on the head and shoulders formation. Most people thought that this was the beginning of the next crash. However, using the strategy, you can see that the 20 ema NEVER actually crossed the 50 ema, and this was THE best buying opportunity if you had missed the April signal. The correct way to play was to buy at that level, and sell for a small loss if the H&S did in fact break down. You would be minimizing your risk. Regardless, by sticking to the strategy you would've been in at SPX 800 and you would still be in profits regardless if the H&S broke down or not.

In terms of sectors, history suggests that financials and technology always leads markets out of recessions, and I don't see this as any exception. Some tech stocks are already reaching pre crash levels, and financials are equally strong. More conservative plays such as commodities are usually the last of the sectors to rise.


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