Friday, November 21, 2014

SPX Update, and How the Market is Similar to a Hurricane

If you're a fundamental bull, you can skip the first few paragraphs, which are written primarily for fundamental bears.  I've noted below in caps where fundamental bulls should pick up again.

I think bears face a psychological challenge that bulls do not.  Bears tend to see what's wrong with the world -- and this can sometimes lead to a sort of righteous anger over perceived wrongdoing by the Powers That Be.  The problem is, while this anger might, in some cases, be completely justified, that kind of emotion just doesn't help a trader.

I think bears need to try and unplug from the bear emotions as best they can.  I've gone through a long arc as a trader, so I've been searching my own experiences for ways to help them do that.  Basically, for me, I started as a fundamental bull (back in the 90's).  At some point in the year 2000, I started waking up to some of the colder realities, and by 2001, I had become a fundamental bear.  At one point, I had a sort of righteous anger, too.  But over the years, I came to realize that emotion was hurting me as a trader, and eventually I unplugged from it.  I'm a fundamental bear, but that's not what I trade.  I try to think and trade like a bull when conditions dictate.

I realize it may be an uphill battle to convince my readers to put their emotions aside, because emotion sells.  Some subscription services even seem to encourage negative emotions, packaging fundamental bearishness with an almost-religious zeal.  I really feel this is hurting people more than it's helping.  It's one thing to be aware of what's going on; but it's entirely another to get emotional about, and/or pass judgment upon, the market.  I've written before about how there is no such thing as market morality.  In other words:  The market does what it does, there is no such thing as what it "should" or "should not" do.

Whatever the market does is what it should do.  What we think it should do is, in actuality, only right when it's right.

Think of it this way:  while the people behind the scenes may or may not be immoral, the market itself is never immoral -- it is amoral.  It's like a computer:  garbage in, garbage out.

As a human, sure: get emotional if you like, and take action about the injustices you feel strongly about:  Elect new leaders, seek to educate your friends, take whatever actions your conscience dictates.  But as a trader, the only goal is to try and figure out what the market is doing and play accordingly.  Removing judgment about what it "should" do helps one do that.  The market itself doesn't understand right or wrong, after all.  It's not a conscious entity that can be held accountable for its actions, it's more like a force of nature.

And if a hurricane is barreling down upon you, it does no good to stand on the beach and scream at the heavens that: "It's just not right that this hurricane will destroy so many homes!  This hurricane should die down soon, that would be the right thing for it to do!"  If you attempt this tactic, most likely you'll become another casualty of the hurricane.  If you think the hurricane is senseless, how much more senseless are your actions in the face of it?

If you think the market is senseless, how much more senseless to fight it?  Especially with judgments of what is "should" or "should not" do?  The market will do whatever it does.  We can either choose to try and profit from that, or we can stand on the beach screaming how "It just ain't right!" until we're swept out to sea by storm surge.


Everything is great!  And getting better all the time!  Look on the bright side: the glass isn't half empty, it's completely empty!  And that means we can fill it up with something great.  Like lemonade that we made from the lemons life handed us!  That would be just swell!  The central banks sure are wonderful, aren't they?  They're really showing us that there's absolutely nothing to worry about, which is why they're continuing all sorts of radical and unprecedented action right now.

Speaking of, I think it's interesting how we're seeing a massive coordinated effort by the world's central banks at the moment.  What's strangely "coincidental" about all the coordinated CB activity that keeps making headlines, almost daily now, is how I noted, back in October, that the October 2014 decline felt (to me) like the November 2011 decline. And of course, I noted shortly thereafter that the subsequent (current) rally also felt like the rally out of the November 2011 bottom.

I think this is extremely interesting because it now appears that November 2011 was the last time we saw this level of coordinated CB activity. I actually find this encouraging, because it tells me that the CB's are leaving some kind of tell on the charts. I haven't been able to consciously identify exactly what that tell was yet, but I know it has to be there, because I made my observations about the feel of the market well before all the central banks made their intentions public -- so it's apparent that I was picking up on something subconsciously.

Last update noted that the market appeared to be reaching an intermediate inflection zone.  The jury is still out on the intermediate term:

Near-term, futures are indicating that bears get the hose again (putting the lotion on their skin would probably not have prevented this, despite Buffalo Bill's claims to the contrary).

I'd also like to republish a chart that I published on November 3, because this rally could simply keep grinding higher against all apparent odds.  In my opinion, quick stabs continue to be the only attempts bears should make against a move like this, since counter-trend traders can very easily end up stranded in this type of market.  INDU chart not shown, but I have one still-viable count that targets 18,500 +/- for the current wave, so the potential for a move similar to the one below remains alive.

In conclusion, we have an intermediate inflection zone, but still have nothing in the way of a topping pattern, and the world's central banks seem to be committed to pumping the world full of liquidity.  And really, what else is there to say?  Have a great weekend, and trade safe.

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