Opening Position
August 2008
We can never predict where
the market will be with 100% certainty, so we are left with expressing our
expectations in terms of probabilities. And if you happen to be a technical
analyst, you're going to base those probabilities on price. Price is dependent
on the behavior and actions of others, which creates the price bubbles we
see on occasion in the markets. These bubbles may not be the norm, but they
affect us in some way or the other. In recent times we have seen such a bubble
-- the housing/credit bubble -- which has already burst. Needless to say, that
has had some significant economic impact.
Not only that, we've only seen the first wave of this crisis. We have
a situation where because of loose monetary policy, debt has piled up. This
has caused the current crisis in the US housing/credit market. At the moment,
the effect has been isolated to the US economy, but in time, we will see
its impact cascade to the global economies, in particular the emerging markets.
Not only that, we're also seeing a food and energy bubble forming, which
will add its fair share to a reduction in the supply of resources. In fact,
we have already started to see it, but supplies will continue to diminish,
and this drastic drop is when we will start to feel the real pain, not just
in the US, but in the global economies as well.
Although the popular belief is that the worst of the credit crisis
is behind us and that the markets are showing signs of a turnaround, we are
still a long way away from being able to determine if the turnaround is a
reversal or just a correction. A bear market is not immune to corrective
bullish rallies, and they certainly provide short-term opportunities for
speculators. But as long as the overall trend is bearish, we're still in
a bear market. As long as there are more shorting opportunities than long
ones, we continue to be in a bear market.
So next time you hear someone say that the worst is over or that we're
only going to see a mild recession in the US, do not start looking for long
positions. Study the market and determine the overall trend. You're in the
market to make money, and the best way to do that is to follow the market,
not unfounded dreams.
Jayanthi Gopalakrishnan,
Editor
Originally published in the August 2008 issue of Technical Analysis
of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright
2008, Technical Analysis, Inc.
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