Opening Position
November 2007
If you look back about a year or so at a chart of the Standard & Poor's 500, you can't help but draw parallels to previous bubbles in the history of the equity markets. Usually, an upward trending market goes hand in hand with a rise in consumer confidence. But it takes just one incident to break that confidence and make consumers run from equities, commodities, Treasuries, what have you, all the way to cash. From mid-July 2006 until late February 2007 the S&P was in a steady uptrend. Panic selling came to the forefront due to the selloff in China. This was a short-lived selloff with markets resuming their uptrend within a month. It wasn't until late July 2007, despite months of warning, that the subprime fallout affected the markets.
Following the subprime crisis was a cascade of weakening US economic data, which of course added volatility to the markets. Besides the credit markets being in bad shape, we have a weakening US dollar at a time when oil prices are rising. This is good news for Canadians, whose dollar is correlated to the price of oil. For the first time in three decades the Canadian loonie has reached parity with the US dollar.
Leaving aside the fundamental data, the chart of the S&P shows that the markets have almost reached the levels before the subprime woes hit the financial markets. It's a no-brainer that the 50-basis-point cut in interest rates by the Federal Reserve had everything to do with the recovery in the markets. We can thank Fed chairman Ben Bernanke for that, but the next challenge, which is a major concern, will be to conquer inflation. If the weakening economic trends continue, we can expect more volatility ahead with markets moving within a wide range. As a trader, how can you prepare to combat this type of market?
A market that is trading within a range is very different from one that is trending. Because of this you need to choose the correct indicators to apply to this type of market. "Let The Indicator Fit The Market," an article by Martha Stokes in this, the November 2007 issue of Technical Analysis of STOCKS & COMMODITIES, will help you identify which indicators will apply to the current market. You will also be introduced to a method that will help you enter markets early enough to squeeze out some profits. The article starts on page 28.
Not only that, we all know that oscillators are the best indicators to apply to a trading range market. Also in this issue is an article on a fast and reliable oscillator known as the SVAPO that you can easily apply to your trading. Our feature article this time, "Short-Term Volume And Price Oscillator" by Sylvain Vervoort, starts on page 21.
Finally, I would like to remind our subscribers that voting for the
Readers' Choice Awards continues in November. Remember, we appreciate your
input, so visit our website and tell us which products or services you
like and find useful.
Jayanthi Gopalakrishnan,
Editor
Originally published in the November 2007 issue of Technical Analysis
of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright
2007, Technical Analysis, Inc.
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