Stock Market has Switched into Overdrive

The market has switched into total overdrive with the weekly RSI reading currently showing 72.62 above the critical 70 line. 

BestOnlineTrades has been correct in maintaining the stance that this reading should be perceived as internal market strength and not a sudden reason to short the market.  The path of least resistance remains up and the daily tape action continues to show persistence and strength.

Price movement on the weekly charts is still forming higher highs and higher lows and has not transitioned into a distribution pattern.  This is a very key point because before the market can start to roll over what we want to typically see is a market that is moving higher with less upward force and progress.  This can be observed by the angle of ascent if you look carefully at the charts.

overdrive2 So at some point we expect the market to still trade higher but transition into a more sideways to up trend rather than the current state which is mostly just up up up.  The sideways movement will be a sign that distribution has started to occur and that a change in trend is at hand or least closer than before.

BestOnlineTrades has identified some potential key factors that will mark the market top this year.  We believe it will occur in the time frame of July August 2010.  I hope to write up a report pointing out how I will identify this top, when it might occur and why sometime early next week.

This top may be one of the most significant trade setups for the entire year of 2010 and will probably be well worth the patience to identify it correctly.

Ideally, that would make three possible massive trade setups this year.

  1. Gold
  2. Natural Gas
  3. Stock Market

Gold looks about ready to get above critical levels that should mark a new serious uptrend.  We hope to identify that next week sometime and will be looking for confirmation.

Natural gas is finding a supporting bid lately on the weekly charts and could also possibly be signaling a new bull market by the end of this month or end of next month.  No confirmation exists in the Natural Gas market yet however.

The stock market ‘big trade’ will be trading it from the short side as already indicated above in the July-August time frame.  In our opinion this could be one of the best online trades of 2010, but just as with the other markets, important confirmation is necessary.

This is why we feel it is not worth it to short the stock market at any time in the next 2 months.  It is probably a much better strategy to keep plenty of dry powder for the expected turn in the July-August time frame.

The big trades are the ones that make trading worthwhile.  Identifying continuation or turning points is where most of the money is made in the stock market.

We agree with Jesse Livermore when he says:

It’s not the thinkin’ that makes the money – it’s the sittin’ and the waitin’ that makes the money.

I used to think that by this quote Livermore meant that he made the most profits by sitting in a position and waiting for it to mature.  But I recently learned (from Richard Smitten – author of Trade like Jesse Livermore) that he meant there were many occasions when he sat and and waited in cash, until the right situation appeared.  When these conditions came together, when as many odds as possible were in his favor, then and only then, like a cobra, he would strike.

That mentality is the one which I think will help in identifying the next great shorting opportunity.

Posted in Index Trading, Market Timing
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