Opening Position
June 2005
So which way is the market trending? Given how the markets were acting in mid-April as I write this, it's hard to tell. There were three days of sharp selloffs, another sharp selloff after two days of modest rallies, and then a strong rally. Gives you the feeling that investors are nervous, doesn't it? Who could blame them if, one day, they find out that the US economy isn't growing as fast as expected, but the next day Google announces solid earnings growth?
Although many companies were reporting earnings growth, some larger-cap companies such as IBM, General Motors (GM), and Ford had disappointing earnings. This, along with oil prices still being high and the likelihood of interest rates continuing to rise, has affected investor sentiment. Add to that the budget deficit, which Federal Reserve chairman Alan Greenspan has stated is a concern, and we have a tepid but confused picture of the economy.
But from time to time, we get surprising news like Google's that makes us reminisce about the markets of the late 1990s. Google's share price soared on the earnings announcement, and this positive news sent the broader markets into a strong rally.
Trading during times of high volatility increases your risks even more because it becomes extremely difficult to determine which direction markets are heading. In the Technical Analysis of STOCKS & COMMODITIES interview for this issue, we spoke with Michael Covel of Trendfollowing.com to find out how someone who trades strictly on the direction of the trend fares in volatile environments. You may find yourself so inspired that you turn to markets you don't usually trade to find those trends. The interview starts on page 52.
As you may know, currency markets are the ones that are most likely to trend. In the article "Taking Retracement Analysis Beyond The Horizontal," Cornelius Luca discusses how to determine the health of a trend. It's a simple technique, and one you may be well versed in. If you haven't applied it to your trading, you may find it worth revisiting. Another variable often used to detect when a trend is starting is volume, and we have included a couple of articles on this topic. In "Spike Up The Volume" by Giorgos Siligardos, you'll find out how spikes in volume really affect indicators and prices. And in "Visualize Price Movement" by François Bertrand, you'll find out about an innovative charting technique that will help you determine where the volume is and which way it is going.
At the moment, we may know where the volume is, but we don't know which way the market is going. But who knows? Perhaps by the time you read this, we'll know which way the market is trending, and you'll see plenty of profit-making opportunities come your way.
Jayanthi Gopalakrishnan, Editor
Originally published in the June 2005 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2005, Technical Analysis, Inc.
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