Tuesday, March 04, 2008

SPI Trading: Day 2

I planned to do live trading again today. My idea about what would happen at the open was correct - A pop up followed by a decline, but I missed the shorting opportunities, the first time because of caution and the second time because of inattention. Then I tried some simulated trades and lost three times in a row (-$10, -$185, -$225). No disasters, but I knew these were low probability trades, which is why I didn't try them with real money.

On the investing side, we are getting close to the potential buy point. The model is signalling Thursday as the beginning of an uptrend in NDX, SPX, and AORD. The Wednesday effect means that this could be brought forward. However, if we get into oversold territory then all bets are off until the market decides to reverse itself. The lowest my proprietary stochastic for the NDX can go on Tuesday is 23.4. But then even a decent 15 point bounce on Wednesday would still leave us oversold. But if the market falls less on Tuesday then even a small bounce will keep us out of oversold on Wednesday and then the reversal would be intact for Thursday.

NDX is getting close to the January lows but, based on the triangle formation since the January low, we should expect a low of 1610-ish. SPX is further from its lows. Stochastics on the weekly charts have also crossed and are now moving down, which is a necessary precondition for a meaningful low. The All Ordinaries is behaving very much like the SPX.

Bottom-line - if the market only sells off a little on Tuesday expect a bounce starting Wednesday. This week will not be the ultimate low. A strong sell-off on Tuesday is likely to result in the current downtrend producing the ultimate low for this bear market.

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