What’s the best thing to talk about when the market is firing on all cylinders? Recessions, of...
The Election Is Over...Now What’s a Trader to Do?
11/05/2010 12:01 am EST
With the election over and Congress divided, it may be difficult for the President to get much done. None of this will take effect until near year, but traders are asking the big question, “Will the government work together as a team, or will it be a stalemate?”
Today’s whipsaw action after the FOMC statement shook things up—as it always does. We saw gold, silver, the dollar, S&P500, and bond prices go haywire. It took about 30 minutes for the market to digest this news, and in that time, a lot of people lost money because of the wide price swings. Trading around news, I find, is a net-losing trade over the long run, and I advise traders never to do it. Rather, wait for a trend to form and trade any low-risk set-ups that come your way.
I truly believe that the market has already priced in most news and events that unfold, and that news tends to agree with the overall trend of the market. Of course, there will be short-term blips on the charts from the news, but they tend to be minor setbacks in the underlying market trend. That being said, the trend is our friend, and while so many are trying to pick a top in the equities market, it makes me cringe because they are fighting the trend, and fighting the Fed.
Successful trading is done by trading the trend, and during choppy times, you may get roughed up a bit and need to alter your strategy for a shorter-term momentum play, but overall, you have to stick with the trend until proven wrong. Once the trend reverses and confirms, only then can you start shorting the market.
Last week, we took another long position near the lows on the S&P500 as it dipped down to key support with the market internals confirming our entry. This low-risk set-up gets us into a market at an extreme, meaning we are in the money usually within hours of entry, and the market tends to keep well above our entry point until it’s ready for another surge higher or a break down.
I agree with those of you who think the market is way overbought and due for a strong pullback, and I find myself squirming in my chair when I take another long position way up here in the lofty S&P 500 prices. But over the years, I have found that if it’s hard to pull the trigger, then it should be a good trade if all the trading rules have been met, and if it’s a clear chart set-up (meaning an easy-looking trade), you better watch out!
SPY: S&P 500 Exchange Traded Fund (ETF)
This chart shows two charts, one of the ten-minute intraday chart covering six trading sessions. It shows where we had our recent entry point, and also shows how the stock market tries to buck traders off a bull market.
The bottom chart shows the daily chart and today’s strong reversal candle closing at a new multi-month high. Again, the market is way overdone, and I never recommend chasing a stock, commodity, or index. Instead, wait for a pullback to support before getting on the bull.
In short, the market is still trending up, so stick with the trend for now and do not, for any reason, chase the market just because you want in. Wait for an intraday dip on the 30-minute chart if you’re dying to get involved.
The average bull market lasts about two years, and the Fed plans on pumping money into the market long enough to make this a two-year bull market. I’m not saying we get higher prices for that long, but that’s more or less the plan for the guys manipulating the market up. So when it does fall, there is plenty of room, so hopefully the 2009 low is not broken, which would not be good.
By Chris Vermeulen of TheGoldandOilGuy.com
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