The short cycle was supposed to bottom yesterday and by the price action of today, it seems that things are on script. Yes, it did sell off after the 2nd hour but that was only to be expected. The down momentum for the last two days was very strong and it cannot reverse on a dime. Unless there is some special surprise for the market. But now with QEinfinity by the Fed and unlimited but sterilized bond buying by ECB, there are no more surprises left. Now bad news can be bad news. Earlier bad news was good news because the market would think if things are bad, the Fed would give more free money. So now things are so bad that the Fed has opened the tap till eternity.
Yesterday I wrote that a bounce is very much expected. Among other things, I said that after each QE, the market initially sell off.
As you can see from the chart even with QE 1, which had the best bang for the buck so far, the market initially sold off before finding the bottom. I think it is the Banksters who create the panic and buy cheap only to sell back at higher level. Now after two weeks of sideways movement and one week of selling, the sentiment of the retail is definitely bearish. All the bears have come out of the woodwork.
It looks like a giant topping process is going on. Nasdaq is definitely the sick man in the town. But I still think there will be one last push from the 24th Oct till 12th Nov. We will see renewed bullishness in the market during that period. I do not know whether SPX will cross 1500 but looking at Nasdaq today I am becoming sceptical. Between now and 23rd Oct. I expect there will be lots of backing and filling.
The opportunities of life time are coming up. Those of us who missed the bear market of 2008-9, will again be rewarded with another opportunity. But we need to keep the powder dry and take the shot when we are sure of the hit.
Although I think that the market will go up from here for the final rise, I am still not going long with any equities. My target segment is almost totally the PM sector. And even there I am not fully invested as I think the correction in PM may not be fully over yet. I am scaling in position. So far gold has made a base around $1760 and silver has made a base around $ 33.80. My expectation is that in the next few sessions, gold will make another attempt to break above $ 1800 and silver will make another attempt to break above $35. We will have to wait and see if gold and silver are successful in clearing that hurdle. If not, we may have another short correction and gold may even come down to $ 1740 and silver to $33 level. Those would be excellent opportunities to get in and we may not get those entry opportunities again in a very long time. We will take a call as we come near to that point.
I want to emphasize that I am talking of core positions and not day trading positions. It is like we take a position and forget about it. After few years we remember and find out that our investment has doubled.
The purpose of this blog is share the lessons I have learned from the mistakes that I have made so that others need not go through the same mistakes. The biggest lesson is that we make most money in least number of trades and we lose money by trading too much. Now I want to trade less, invest more; not speculate and be in the market for the least time possible.
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