July 2013OPENING POSITION
July 2013When markets look like they are embarking on a bullish rally, you will notice some hesitation from those who look to buy & hold for the long term. People will be nervous at this point, so they may choose to only put a small percentage of their assets in the markets and plan on holding onto that for the short term. As a result, you won’t see a lot of volume in the markets. And then, before you know it, the markets look like they’ve got their groove back and investors become more optimistic as the markets move even higher. The thought of holding for the short term is now in their distant memory.
We saw that happen recently when the Dow Jones Industrial Average (DJIA) hit its 14,000 mark. It didn’t take too long for it to hit the 15,000 mark and now all eyes are hoping for it to hit the 16,000 mark. The pullbacks during this rally, especially from November 2012 into the first half of 2013, have been sharp, with significant one-day, high-volume drops. That’s enough to make any short-term trader sell their long positions and look to go short. But long-term investors may be more inclined to continue holding their positions.
But, as Tom Bulkowski states in his article, “Trading Buy & Hold” starting here, there comes a time when you have to sell positions that you may have held for decades. You still need to have exit rules in place so you know when to sell. They will be different from those used by short-term traders who prefer to look at indicators or chart patterns. In “The Step Candle Pattern” in this issue, Sylvain Vervoort discusses some unique patterns that occur frequently at turning points. Swing or position traders will benefit greatly from identifying these patterns, especially if they combine them with other tools they are already using. The article starts here.
There are also certain characteristics that tend to dominate during market tops and bottoms. Martti Luoma and Seppo Pynnönen, in their article titled “Predicting Market Turning Points” starting here, look at abnormal behavior patterns with respect to defensive and aggressive stocks. Identifying when institutions are amassing defensive or aggressive stocks can serve as a signal for upcoming tops and bottoms. And if you combine all this knowledge with the mean time to failure rates for bullish trends discussed in L.A. Little’s article “How Long Will The Trend Last?” (starting here), you have everything you need to become an expert at trend identification.
What are you waiting for?
Jayanthi Gopalakrishnan, Editor