Thursday, April 22, 2010

The Coming Spike?

Markets have been steadily climbing, without hesitation but does that mean we are do for a correction? Maybe, or are we about to just plow through any correction and blowoff the bull market in the coming weeks? Chart one shows the Elliot Wave Theory within a channel trend. The signals are pointing to a weakening pattern, but prices can still move higher as the technicals continue to weaken. The rising prices are unsustainable long-term, but in the short-term we can see a blowoff top that would signal the end of "The Great Bounce Of 09", so some strategic planning and execution are what matters - defining a plan is a must to reduce risk.

And what does a simple calculation from Technical Analysis 101 mean for the market? Based on the Head and Shoulders Pattern calculation[(neckline - head) + (neckline) = Target], so the target for the Dow is anywhere between 11500-12500 (see chart below) - I use this large area in the Dow loosely because anything is possible. This is where your execution and plan comes into affect - defining where you want to be for the next 6-9m is crucial in the coming weeks. Liquidation will occur in this area which will increase volatility - it's already showing signs in the VIX.

The only thing one can do is take a measured approach to your risk appetite. You can start to diversify out of stock and into cash or you could take on some hedges by going short the areas of the market which you believe will fall, faster and further, which would hopefully offset the losses from any part of the portfolio that is long. The coming week(s) are going to be one for the record books, again!

Good Trading!

1 comment:

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