Tuesday 10 January 2012

Is this really the end of the rally?

Wishful thinking?
I have made my move and closed my positions. I now have to wait to see whether I am right. It's a horrible sort of wait. The market moves against you and you start to doubt your judgement. But it does not move strongly enough to give you a clear signal that you are wrong. So you try to find some signal which provides support for your judgement. You want to bolster your resolve. And that is my chart of the day.

I superimpose some lines on the graph which suggest that the chart is forming a well known shape called a rising wedge. The pattern began to appear immediately after the August crash. Statistically it has been shown that a rising wedge results in a reversal in the price movement once prices are close to the apex and a breakout to the downside occurs. Some earlier breakouts are allowed in the identification process, but the pattern should look well formed with two or three touches top and bottom. The other characteristic that helps identify the formation is falling volume throughout the pattern. I can persuade myself that that is exactly what we have and so we can expect a market downturn.

But I am probably whistling in the dark: looking for justifications for my judgement and my decision.

I have also exited gold and silver. That is based on my observation that these two metals have been following stock market movements in the recent past. I need to watch carefully in case this relationship changes.

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