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Get Ready

Published on February 22, 2012

Get Ready

February 22, 2012

Making predictions is a risky business. As a market participant, the best one can do is to make forecast and assign probabilities. Since my last post, markets have been grinding higher but the pace is slowing down. Nothing significant has been achieved on big picture basis. At times, I think it’s Greece that’s keeping markets alive; because at one point, the deal is done only to find that it mean nothing much the next day, but by then markets have already moved on.  The again, after some pause, there is a deal which again falters the next day and this “deals is, deal isn’t” story has been continuing for the past 2 years. And in between “the deal is, the deal isn’t” is the “timing” of news which makes it difficult to trade markets. Those who day trade know what I mean.

Moving on to US markets. S&P500 hit 1367.76 yesterday; the cracks are already appearing beneath the surface. Almost every key analytical tool that I use is flashing “get out”, at least for short term. Be it old theories like Dow Theory or Modern volatility based indicators, all are saying “exit” (based on the way I use them).  Having said that, forecasting right and being right on time are two separate things, especially for an option trader. As an option trader, you may forecast right but if you are off time, Mr theta will come and take away his share slowly.

Divergence in Industrial and Transports

Internals aren’t great either, the A/D line is diverging with price action in S&P 500 and New highs topped on Feb 3rd (at least for now). Dow has already hit almost 100% gains since Mar 2009 lows. What does all this mean to me? The “probability” of going higher is lower vs probability of markets going lower. If S&P can clear 1375 and stay there, then all of the above analysis will be void.

So for whatever worth it might be, I will suggest booking profits (if you were riding the trend) and wait for a better entry to re-enter the markets. 2012 will be an interesting year.

Profitable Trading, OP

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