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Monday, August 30, 2010

Market Thought... what if

Always gotta keep thinking...

In my previous posts, I have consistently been trying to highlight certain fundamental strengths of the market which do not merit a breakdown from the current trading dynamic. Unfortunately we must always think of the worst case scenarios. So, what if the current trading dynamic is lost?

When I look at this chart and combine it with known global growth rates, investor sentiment and lack of participation by the big-boys, I see a nice consolidation pattern with many many opportunities.

From a pure chartists perspective, if the trading dynamic fails, there is a lot of empty space until the 950 level.

Fundamentally (via BRIC growth rates, extremely low investor sentiment and complete lack of leverage in the equities market), I completely reject the principal of going to 950 or lower. I personally do not see the justification, hence will not understand where an appropriate entry point would be if the market breaks down. So I will not be able to actively trade the market if we break.

If the dynamic is broken, the VIX should begin to push upward. I will let the VIX guide me in my trade to go 'all-in'. The trigger will be with the VIX pushing near or north of 38. However, due to the lack of participation by the Big-Boys, the VIX may be muted, as there is nothing to protect. So another trigger may emerge. I will be paying close attention.

Just to be crystal clear, I do not think we break down. I am long right now with IBM as my largest position.

I am not in an 'all-in' portfolio position, as I was in July testing the 320SMA level, but still very exposed. If the market breaks down, I will lose money. But I am in the position to take advantage.

I will not hesitate to go all in.

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