I analyze macroeconomic issues from a fundamental perspective, and I analyze market behavior from a technical perspective. Original macroeconomic analysis can be found here and both macro analysis and commentary can be found on my Caps blog. If you like or appreciate my analysis, please add yourself to my Following List

Monday, October 26, 2009

Mark910: Calling the Top.......Who cares? Why you should.

Here is a great post by my friend and fellow blogger Mark910 --- Buen ' Dia', Oct 26 : Calling the Top.......Who cares? Why you should.

"...We should start by defining "TOP". To a trader, the top can mean simply a high from which the market retreats for some period of time and is therefore tradable. In fact, to a day trader, the top can mean high of the day. However for purposes of this article I choose to define “The Top” as - the time period in which an investment is worth at or near its maximum to which it will not return for a period of time measured in years that are unacceptable to the investor. Thus there is some leeway in the definition for investor’s circumstances. To a trader, prudently trading with a small percentage of his net worth, a 50% drop might not be the end of the world. And yet, to a pensioner who is past his productive years 10% might be huge. A drop in the market, for instance, of 30% requires a 50% increase to get back to even. The S&P dropped about this amount in both 1970 and 1987 and it took 2-3 years to recover. In 1973 and 2001 the S&P fell 50% or so. In both cases the recovery took about 8 years. Even a retracement of a 20% correction could take years. ..."
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