Tuesday, November 25, 2008


I've had a horrible past two days due to my short positions that I entered last Friday. A good lesson learned I suppose, that is, don't enter trades when you haven't had time to do your research. A quick glance at the chart I put up this weekend would have given me enough hesitation to put off buying those puts Friday afternoon. As I expected, a test of the 38.2% rt level was in play, and we hit that 84-85 resistance level first thing on Monday. It ended up being a battleground of bears vs bulls as we ended up fighting that line up until the last hour and half on Monday. Since Monday closed right at 85, I was hoping for the buying to subside and have a closing candle below for Tuesday. As you'll see below, we've got a closing candle above the 38.2 rt level for Tuesday:

It seems like we might be stuck trending between 84-85 and 90 for now, but I've taken the liberty to draw out 4 possible scenarios (of the dozens there are) that I can foresee happening. Obviously they won't depict the minute-by-minute whipsaw action we've seen, nor even the daily- but I think we can use these to slowly pick off one by one which ones have been invalidated over the next week or so.

As I mentioned in my previous post, I'm continuing to monitor our markets post-election with that of Taiwan's election/inauguration. In my last post, I thought that the post-election market reaction in Taiwan was likely out of play for now, but now with the 3 up days the bulls have put up, the 100% retracement to the election high that was seen in Taiwan, may also be in play for U.S. That would look something like case 3 in the chart above.

Case 1 is the other Taiwan-related movement that I will be watching for. Case 1 is what happened in Taiwan markets after the inauguration of their new president. That is, they sold off for the first 13-14 days after the inauguration, followed by a 2 day rally, followed by fresh lows, breaking the previous support.

Case 2 and 4 are just other things to be watchful for. The chart certainly favors the long side as there's basically 3 up predictions, and 1 down prediction. We should be able to eliminate Case 1 fairly soon, as any pro-longed rally or lingering in this area will invalidate my case for the U.S. markets following Taiwan's markets, post-inauguration.

I will look for an opportunity to exit my puts, as I feel a great uncertainty and indecision in the markets right now. I'd rather be in cash than try and ride this wave up and hope that it does not become extended.

So, a caution on my usual, "3 things to do in this bear market," may be to hold off on #2, which is to go short. The risk/reward here does not justify shorting [more] at these levels. If anything, ease into your positions and add to the position when the move is confirmed. Here's an interesting chart that someone else posted online:

Not much to say other than all those bear markets in the past hit a temporary bottom after a 50% decline, two of which pictured here, ended up being the end of the bear market. Yes, this time might be different, but just something to keep in the back of our minds.

Also, something I thought of for this week... perhaps the markets are being inflated for Black Friday, so that consumers will feel giddy and have less on their minds than their portfolio that is in the drain. Then, when the first numbers come out about how the consumers have disappointed, perhaps we follow through [Black Friday] with a Black Monday?

This will likely be my last post until the weekend, but may update if something reveals itself to me. Happy Thanksgiving everyone, be thankful that we are still in the game. Everyone can do well in a bull market, but the real test is how you do in a bear market. The fact that we have preserved capital is enough for me to be thankful. Looking forward to eating some duck. :)

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