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

Thursday, October 27, 2011

Oct 27

:) This is is just one of the days/weeks that you have to look at with bemused detachment. First off, if you were long going into this morning, congrats! Like I said yesterday, my trend system triggered a cover signal, and almost triggered a buy signal. Unfortunately this one isn't horeshoes. No cigar here.

I guess why it is really annoying is because I am definitely on the bullish side of things with my outlook and have been for the last several months. But I don't trade my outlook, I trade my system. And there has been enough chop and loss of momentum to keep my long signals from triggering before the move happens (as opposed to the beginning of October when it captured nearly the entire move from Oct 4 to Oct 12). So the only thing I can do is laugh and shrug. I am not chasing it here, I will wait for the next pullback, even if it is just sideways consolidation. This is when it pays to be patient and to wait for the next setup. That's what I am doing at least. October has been very good for my trading account so far, I am not going to blow it at the end of the month by getting emotional about it.

One saving grace is that my Daily Trend System has been on a long signal since 10/10 at 1181 (see here). So while the chop the last week has been putting the hurt on my 60-minute system (and by 'hurt' I mean that it is getting shaken out before the real trend emerges. It is still up 0.6% for the last 3 trades and 10.6% for the last 4), the Daily System keeps rising. In fact the Daily Cycle signal is looking downright bullish.

A word on 'overbought'

I have been seeing a lot of posts talking about how overbought things are: 'the NYMO is crazy overbought!', 'the RSI is at hugely overbought levels!', etc. That may be, but I wouldn't take a short position based solely on 'overbought'. Markets can stay overbought far longer than they stay oversold. I even use the term overbought sometimes. But the point is that I never short based on that. I wait for my system to give a sell signal first (which has to have a little downward momentum behind it).
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