Wild swings | stockbee

11/21/2007

Wild swings

The poor action over few weeks has driven the market to levels where a reflex bounce was a possible course of action. The holiday shortened week was ideal for that kind of bounce to develop. We got one yesterday for few hours. The bounce quickly fizzled out. Market gapped up as many participants were expecting a bounce. The gap up was aggressively bought and technology stocks were up a lot in few hours. Normally such bounces are followed by day long strength. But the sellers were quick to pounce on the strength and the market spent much of the day giving back those gains and regaining some at close. When market does not act according to script, that is a clear and loud warning sign. Market participants lack the confidence and are playing the bounce only for a quick buck or two.

When market enters correction zone, as this market is currently in as per Market Monitor signals, this kind of wild swings and mood change is a common thing. The last five years of rally has conditioned lot of traders and speculators to chase such reflex bounce, as they have till now lead to straight up, non stop moves. Such reflex bounce as the name indicate are just bounces and if you do not quickly lock in your profit and sell, they quickly fade, you have to anticipate them and play them, instead of chasing them. They are only for very nimble and quick traders. When the market turns for good, the Market Monitor will signal it, like it did last time after correction. That signal resulted in very powerful rally. Till that signal comes in many such reflex bounces are possibilities. Some will fizzle out quickly, some will last few days, and some will suck you in only to disappoint.

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