Thursday, 30 January 2014

Close shave


Let's start with the UK market because that' where I almost came a cropper. After that tweezer pattern, which should have driven me out of the market before any damage was done, we had three days of heavy falls (53 points, 110 points, and 113 points). I sold early on the second day. Then Tuesday was a modest up day and I did nothing. The bad day was yesterday. There was a 73 point rise (95 if you include Tuesday's rise) from the open. That sort of thing makes me worry if I'm out of the market and badly need profits. Then there was a most violent wobble as the US futures' indication switched from a positive open to a negative one. High to low on the UK market was 163 points before it closed 28 points down.

Luckily I was not tempted back into the market by the initial rise. Today the fall continues, though currently the support line seems to be holding  the fall back. If there is going to be a bounce it could be here.


The US market has come down by 4% from its peak when measured by the S&P and by about 4.5% when measured on the DJI. The DJI has broken through two support levels and is sitting on a third. As ever when I don't quite know what to think I put the Fibonacci retracements on the graph. It's a bit like rubbing your rabbit's foot for luck. The 38% level held the market for a couple of days and the 50% level is not far away.
You'll remember that Fibonacci was a medieval mathematician who brought an ancient eastern mathematical observation to the West. This is that  if you create a sequence of numbers starting with one and adding the new sum to the previous one (1+1=2 2+1=3 3+2=5 5+3=8 8+5=13 and so on 21, 34, 55, 89, 144...) The ratio between each new number and the previous one settles at 61.8 (89/144=61.8%). The ratio between numbers two apart settles at 38.2 (55/144=38.2%). 61.8 is the golden mean and the numbers in the sequence are frequently found in nature eg numbers of petals in flowers are normally members of the Fibonacci sequence. Traders superstitiously believe that after a share price has moved in one direction it will retrace (pull back) to one of the Fibonacci ratios of the previous move. Say the price has risen by 500 points and starts to retrace it will stop when it has fallen to a point 309 points from the start of the up move it will stop falling. 191= 38.2% of 500, 500-191=309. The belief in Fibonacci retracements has a tendency to be self fulfilling.

So the fun goes on. As the market moves I shall be tempted back and shall be glad I stayed away. The problem is exacerbated by the fact that my selection of shares, the ones that I sold, are not doing too badly and the ones in the US, all those China based ones slip in and out of being profitable after I sold out. A credit to my share picking, but no comfort when I assess my decision to strategically withdraw.

Futures are indicating a rise on the US market despite the second tranche of tapering which was announced yesterday. On the plus side for shares indications are that interests rates will not be raised any time soon.

I have to say that GVC is not doing well. Falling fast on low volumes.

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