Panicky markets can turn on a dime
There is a hint of panic setting in and that is good. Panicky markets turn on a dime. Short sellers often find that their profits are ephemeral, unless they cover quickly. The big speculators are where they are because they buy during panics.
If you study the markets 5% plus weakness over its history you will see on the bearish side, the markets have a propensity to turn on dime. Many moonshot rallies start from panicky weakness. I have studied every single weakness in Index for last many years. When forming a top market take long time but on short side many times the market shrugs of weakness and just rallies vigorously. It might retest those levels later but it might happen months after the weakness.
Playing short requires lot of tactical planning unless you find a short on individual stock with a enduring catalyst. Structurally in the market there are more buyers than sellers, plus behaviour of market players is different on long as against short.
One of the big mistakes one can make in the speculation game is to remain pessimistic about the market too long. Many chronic bears are still stuck on 2002 bear market, similarly they will paint scary scenarios, that is their role, but market seldom behaves as per the chronic bears expectations. The bearish hypothesis always paints extreme scenario.
If you study the markets 5% plus weakness over its history you will see on the bearish side, the markets have a propensity to turn on dime. Many moonshot rallies start from panicky weakness. I have studied every single weakness in Index for last many years. When forming a top market take long time but on short side many times the market shrugs of weakness and just rallies vigorously. It might retest those levels later but it might happen months after the weakness.
Playing short requires lot of tactical planning unless you find a short on individual stock with a enduring catalyst. Structurally in the market there are more buyers than sellers, plus behaviour of market players is different on long as against short.
One of the big mistakes one can make in the speculation game is to remain pessimistic about the market too long. Many chronic bears are still stuck on 2002 bear market, similarly they will paint scary scenarios, that is their role, but market seldom behaves as per the chronic bears expectations. The bearish hypothesis always paints extreme scenario.
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5 comments:
Pradeep,
Thanks for your insight. It really does pay to study historical price action. It all seems so obvious in hindsight - long rally, then big drop, followed by small rally on light volume. It was obvious that the next move was down, not up. Today will be interesting for sure!
Hi Pradeep
thanks for this great blog, Do you have links to how Mark Boucher and/ or William O'Neil calculate relative strengh?
Many thanks
IBD style Relative Strength
0.4 * (C * 100 / C65) + 0.2 * (C * 100 / C130) + 0.2 * (C * 100 /
C195) + 0.2 * (C * 100 / C260)
Mark Boucher Relative strength
( (2 * C * 100 / C5) + (2 * C * 100 / C25) + (2 * C * 100 / C40) + (2
* C * 100 / C65) + (C * 100 / C130) + (C * 100 / C195) + (C * 100 /
C260)) / 11
Formula for calculating them using TC2000
Easyguru
thanks for the reply but I don't use TC 2000 can you explain the formula please.
0.4 * (C * 100 / C65) + 0.2 * (C * 100 / C130) + 0.2 * (C * 100 /
C195) + 0.2 * (C * 100 / C260)
It is a weighted average of 65 day(13 weeks), 130 day (26 weeks), 195 days(39) and 260 days(52 weeks) price growth with higher weight to recent price change.
c= today's closing price
c65 = closing price 65 days ago
c130= closing price 30 days ago
and so on.
Same way the Boucher formula is weighted average but it uses more weights to recent prices.
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