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Created on: 1/30/2011 9:06:50 PM Last Update: 3/6/2011 12:10:49 AM Posted by: RTT
WARNING: This entry is 5698 days old. It may contain broken links, out-dated or misleading content. Please read on with caution.
1 POST
Beware when markets enter irrational exuberance.
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 Thank god markets are emotional, how else would we get fantastic over bought and under bought prices. The only trick for the investor is to know when prices are considered to be within a period 'irrational exuberance'. Some use RSI and Stochastic, others use sentiment readings of confidence, option call put ratios and standard deviations from a long term moving average. Many of these tools have false readings and hence a combination is preferred when forming an opinion and unfortunately that normally end in a confused state of mind for the investor.
It is amazing what you can calculate when you keep it simple stupid. The best tool we could find was simply taking a fast moving average away from a slow moving in percentage terms. The indicator you see below requires explanation of the color coding.
vExUp (Dark Blue): Very Extended upwards trend
ExUp (Blue): Extend upwards trend.
Up (Green): Up trend.
Test (Gray): Trend in test mode.
Dwn (Red): Down trend.
ExDwn (Purple): Extended downwards trend.
vExDwn (Dark Purple): Very extended downwards trend.
Changes in color give adequate warning to you when price action requires your close attention. The dotted blue lines highlight when price will begin to test the trend, or as we call it entering the 'trend testing zone'.
Interpretation Points:
1) If the immediate presentation of indicator shows NO RED then the trend is bullish. This is inclusive of the indicator pulling back as far to the lower dotted blue line.
2) If the immediate presentation of indicator shows NO GREEN then the trend is bearish. This is inclusive of the indicator pulling back as far to the upper dotted blue line.
3) Changes in color require your attention to price action.m/Business/Blog12011/SheepMtCook/1181949024_Kh9VX-O.jpg
4) The more infrequent the appearance of an extended color the more likely that the reading is significant.
On this chart I have circled on the indicator were it has changed color, I have also circled on price where they match up. As you can see taking a position in the market at wrong time proves to be unwise.
I should make you aware that your best financial decisions will be born while the indicator is in a test mode or gray.
Currently, the SP500 is in a 'extended up' period of price action (blue), price are so high you need an oxygen mask. The most recent five times before price fell anywhere between 3% to 16%. But as we all know many of those was before the Jackson Hole speech by USA Fed Chairman Ben Bernanke. So we will have to see what Mr Market has in store for us. Going short may not be the solution, buying puts (just like everyone else has on the SPY) maybe the best course of action.
Of course we cant wait until we see gray again, our holiday plans rely on it(ha).
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NOTE: Posts here are the lite version, more depth on each subject can be found via our RTT Plus membership.
Changes in the world is the source of all market moves, to catch and ride the change we believe a combination
of Gann Angles,
Cycles,
Wyckoff and
Ney logic
is the best way to ride the change, after all these methods have been used successfully for 70+ years.
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Investing Quote...
.."Experience has proved to me that real money made in speculating has been in commitments in a stock or commodity showing a profit right from the start.”..
Jesse Livermore
.."Just because you’re taught that something’s right and everyone believes it’s right, it don’t make it right."..
Mark Twain
.."What greater wealth is there than to own your own life and spend it on growing"..
Ayn Rand
..."There is no difference between communism and socialism, except in the means of achieving the same ultimate end: communism proposes to enslave men by force, socialism - by vote. It is merely the difference between murder and suicide"...
Ayn Rand
.."it is better to have few stocks and to watch them carefully”...
Bernard Burach
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We at readtheticker.com hold the view that a mix of stock chart technical analysis, Richard Wyckoff, William Gann and Jim Hurst methods plus market fundamentals allows the investor to formulate a very sound market opinion. These attributes are mutually inclusive and must be weighted equally before investing or trading in any Stock, ETF, Currency, Bond, Commodity, CFD or Mutual Fund
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