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Just Buy the Highs
May 17, 2008 - I keep reading about how the bear market is over. My question is......WHAT bear...
I keep reading about how the bear market is over. My question is......WHAT bear market? Sure, there were times I thought we were actually getting into one, but the longest recent consistent stretch of a downturn began October 11, 2007 and ended January 22, 2008. About 70 trading days. Here it is, in all its glory......
Whoop-de-freakin'-do. That's the big, bad bear market people are relieved to have survived? Give me a break. The bull market barely missed a beat. The uber-bull market, of course, is anything and everything to do with energy. OIH reached yet another lifetime high today, and I've come to the conclusion that in a market like this, the only way to make profits is to simply keep buying the stocks making new highs. Now, don't get me wrong. I don't do this. I don't even think I can. And shame on me for not having the gumption, guts, or gonads to do so. But momentum stocks just aren't my style. But there's no doubt that this is where the cash is being made. Finding new highs in ProphetCharts is simple enough. Just turn on the Chart Toppers module, and voila, there they are - - updated and live, every day.
There are dozens of charts that have exploded hundreds of percent higher over the past few years. Many of them are related to agriculture or energy. Here are just a few. It's easy with hindsight to drink in the wonderfulness of these charts. But doing it in real time is pretty tough.....
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Does one simply dive into these stocks? Some do. And they have, by and large, profited handsomely from doing so. The difficulty is figuring out when the music is going to stop playing. Was today the top for these stocks? Or is the top several years and many hundreds of percent away? There are some stocks which are strong but have at least emerged from plausible breakout formations. It would easier for me to buy into one of these than one of the hockey sticks shown above. Here is a sampling......
The mistake I made - - - and over the past couple of months, I've made a boatload of them - - is assuming that the normal rules of the road apply. Just take a look at the chart of XLE below, for instance. A chartist might assume that the ascending trendline, drawn over the course of many years, would be a substantial level of resistance. But look what happened today.......blam! The line no longer has meaning, because prices are so exceptionally strong that they powered past it.
I have trimmed my positions way, way down and am preserving cash. I am extremely uncomfortable trading in a market like this. The markets in the first quarter of this year fit me like a glove. Lately it's been agonizingly awkward. The quality of this blog has suffered because of it, and for that I am sorry. But, unfortunately, I'm the author of this thing, so just like this little corner of the web benefits when the stars are lined up with my thinking, it suffers when they're not. That's just the way it is.........in spite of another sad-sack post, I wish you all an enjoyable and relaxing weekend. Discuss this article in the forum. ...thanks
for the trust you've shown in MrSwing.
Disclaimer: Please note that charts and commentary provided by the moderator are for educational purposes only. Any trades placed upon reliance on the moderator’s charts or information is taken at your own risk for your own account. Past performance is no guarantee of future results. While there is great potential for reward trading stocks, futures and options, there is also substantial risk of loss and you must decide your own suitability to trade. Future trading results can never be guaranteed. This is not an offer to buy or sell stock, futures, options or commodity interests. Most trading systems are based on historical formulas which have worked in the past. However, what has happened before may or may not happen again. You can lose all your money trading stocks, futures, and options and you must decide your own suitability as to whether or not to trade. Only trade with true risk capital you can afford to lose. Only trade markets you can properly afford to trade. Properly funded trading accounts typically perform better than those that are not. Never risk more than 2-3% of your account on any one trade. Always define your risk before entering a trade and place a stop to limit your risk. There are no guarantees or certainties in trading. Trading involves hard work, risk, discipline and the ability to follow rules and trade through any tough periods during a system’s draw downs. If you are looking for a guarantee, trading is probably not for you. Most people lose money trading. One of the reasons is that they lack discipline and are unable to be consistent. A system can help you become consistent. Ironically, worrying about the monetary aspect of trading can contribute to and cause a trader to make trading errors. Therefore, it is important to only trade with true risk capital.
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