Thursday, April 16, 2015

Breakout in Small Caps Hold Despite Small Sell Off

Sellers had a crack at reversing the breakout in the Russell 2000, but were unable to deliver a reversal. The index traded a very narrow range as technicals remained on the bullish side.


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Wednesday, April 15, 2015

Russell 2000 Breakout

Today there was no surprise to see a breakout in the Russell 2000 after the lead-in it enjoyed. The Russell 2000 also enjoys relative leadership against both the Nasdaq and S&P.  The current advance is bound by a rising channel, but is also at new all-time highs.


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Tuesday, April 14, 2015

Markets Regains Early Losses

Markets suffered heavy selling during early action, but were able to regain a large section of lost ground by the close.

Large Caps had the best of the action, skewing buying towards more defensive issues, not surprising given the early scare. The 20-day and 50-day MAs have converged, and these played as a rally point for longs. Technicals retained their bullish picture.


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Question from Reader

Declan 
Why is it traders like you and your ilk are uber- bullish in perpetuity?
You write as if these indices have minds of there own, when in reality they are manipulated
And propped up by primarily dealers trying to give the appearance of healthy indices...
It never ends... The most hated bullshit market of all time..

Hi Peter,

I don't think I'm uber bullish, more apathetic bullish. I would be happier to see this market take a dive so I could put my cash holdings to work instead of having them sit in the bank earning nothing! 

If you look at the end of every post I show two tables which highlight levels where markets typically find historic extremes. Based on where markets lie now, there is no extreme. So one has to work with what's gone before, and that's a 6-year bull cycle which hasn't show signs of slowing. 

People may think 6-years is a long time, and for many a bull rally that has gone before, it is. However, there was an 11-year gap from 1990 to 2001 when the S&P traded 10% below its 200-day MA; that's a killer bull market which lasted 10 years to its eventual peak in 2000. Even in this analogy, there is only a 4-year gap to the last time the S&P was 10% below its 200-day MA, which was 2011. 

Yes, the crash in 2000 caused huge portfolio damage, but if you had bought in 1990 when the S&P was 10% below its 200-day MA and held to the eventual lows of the crash in 2002, you would have still earned around 150% on your initial investment. Or put another way, the lows of 2002 were the same as the highs at the start of 1997, so if you sold in 1997, 7-years after your initial investment, you would have had the same return as holding during the worst of the crash. Admittedly, that's a 5-year gap when nothing happened, but if you took profits when markets reached extremes as per my table, you probably would have banked a larger return. And if you adopted the stance the 2002 low was another buying extreme, you probably would have added more. 

Even in recent times, the Russell 2000 gave a 'buy' signal in October 2014 when it managed to drop at least 8.8% below its 200-day MA, and $IWM is up nearly 16% from that low. 

There is no full proof system. And, Yes, the market is full of crap; crap which piles up the shorter your time horizon becomes. But by keeping things at arms length and investing in Large Caps stocks or index ETFs when markets do reach extremes, I can at least take some comfort I'm taking the correct course of action when the opinion of others (and the media) may suggest otherwise. 

As for now, I shrug my shoulders, as I see little reason to take new positions, and little reason to sell what I already own. 

Hope this helps,
Declan

P.S. One of my Kindle reads is the Chimp Paradox, which fits well with the struggles of trading. So to entertain my trading Chimp (and keep him away from the money that matters), I trade a little on eToro.  On eToro you will see me trade long and short - so the "uber bullish" title doesn't really fit in with my Chimp logic! Thankfully, eToro lets you effectively trade small bets, so it's a bit of fun without churning through meaningful sums of cash. However, it helps keep me focused on the investing decisions when they need to be made, as I don't want to be trading what I consider are long-term investments. 

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Dr. Declan Fallon is the Senior Market Technician and Community Director for Zignals.com, and Product Development Manager for ActivateClients.com. I do a weekly broadcast on Friday's at 13:30 GMT for Tradercast, covering indices, FX and gold, silver and oil - all are welcome! You can read what others are saying about Zignals on Investimonials.com.

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