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Celebration or Caution?

October 16, 2009

So Dow managed to cross over 10,000 stayed above that level for the past two days. Where will it close today, no one knows and hence let’s discard today’s move.

So is it time to celebrate great news of 10K crossover or time for caution? No doubt, markets, world wide, have staged spectacular rally since Mar low. Green shoots seems to have turned into nascent plants. According to Barnanke, the recession is over; overly bullishness is indicated by put/call ratios, then shouldn’t this be the time for celebration? open a champagne?

DJI Techincal Chart Oct 09

I think now is the time for precaution; Well, if you look at the chart above, you will notice that Dow is very close to the 50% mark (i.e. losses from 07 top to the Mar’09 low). This is going to be a key resistance level to watch; successful penetration of this level will indicate that the trend is continuing; so mark it in your diary Dow 10,374, allow +/- 50 to 100 points.

There are plenty of arguments for either bulls or bears (BTW, there is a good weekly commentary from John Hussman that you may want to read over the weekend). I am amazed just how quickly things have turned to upside. This leads me to think 1) were things really that bad as projected? or 2) since junk was covered up in-stead of clean-up, are we building a house on even weaker foundations than before thus setting-up future generations for even a bigger disaster.

Anyway, what matters is that whether or not you are preserving your capital and growing it; remember tortoise won the race not because he could run faster but because the hare was tired. For OPNewsletter, we have started the Nov’09 portfolio. If you would like to join, pls sign-up for the waitlist here.

Get ready for a busy earning period starting next week,

Profitable Trading, OP

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