On Monday markets looked as though they were ready to collapse with no hope for a rally. However, out of nowhere came a massive rally in the NASDAQ reversing almost 300 points from the lows closing at the high of the day. Many suggest that was the bottom and markets are headed higher.
One thing to remember about markets is the more you try to predict what is next, the more likey you will end up disappointed, wondering where all your money went. One simple rule to remember is markets work on price action, not opinions, not the economy, and certainly not the news. In fact, if you try and trade the news you lose!
Monday’s rally that surprised many was really suspected because of the dramatic selling the last four days. Remember that markets trend, huge moves in either direction are common and usually signal an opportunity to add to your position, whether long or short. We are short across the board and will stay there until the trend changes.
Far too often traders and investors spend too much time trying to predict the next move or the next macroeconomic cycle which almost always ends in failure. No one knows what the next cycle is, when it will start, or how it will end.
As we look at markets today, we recognize that we are in a major asset bubble, mostly perpetrated by the crappy Fed policies. However, although we know the bubble will burst, nobody knows when that will occur. All we can do is watch the price action, which will show us where the markets should be headed vs. trying to predict tops and bottoms.
If you take the time to remember one simple fact of markets, they are all the same, they will all go through the same basic market phases. Those phases are consolidation, breakout in either direction, and typically and in what is known as blowoff. If you understand that all charts are the same, all patterns repeat themselves, in the shortest timeframe will always signal direction for the longer term. Stop trying to be a prophet start working on earning profits.
Todd Horwitz Chief Strategist BubbaTrading.com
Stop being a prophet and make profits
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