Nov
27
2009

  Goooood Morning, Dubai!

I'm glad I decided to tough it out and trade this morning instead of take a much-needed nap (William was restless from about 5am on). Ordinarily, the day after Thanksgiving is a throw-away trading day since the market closes early and there's little volume since all the traders are on vacation.

But today we've got reaction from Dubai's default on $60 billion of debt. It was announced a couple days ago, but was it after the market closed on Wednesday? I forget. I knew about it, but didn't think much of it. But today, people are trading on it. I don't know if there is much exposure to the debt in the US, or if our markets are trading down based on the major declines in the Asian markets.

I was pleasantly surprised to log on this morning and see that not only were my short positions (which have been in the red for over a week now) up today, but they've recovered all their previous losses and are now profitable. We had a BIG gap down this morning. The prices are back up a bit (therefore my profits aren't quite as fat), but what will be telling will be the action in the last hour of trading (from noon-1pm today instead of 3-4pm).

It remains to be seen whether this news breaks the back of this infernal rally, or whether it just sparks a correction. Either way, it's good for me. I am glad I trusted my instincts and did NOT set tight stops on my shorts this time, I just had a feeling they needed a little room to play out, and I am vindicated. I must now examine my charts with new eyes to determine the odds of a short-term correction with stocks still closing higher at the end of the year versus the odds that the rally is over and the bear market's decline will resume in earnest.

It's very exciting when there is action in the tape, the past several sessions have been dullsville. I think it's interesting that gold is down the day a sovereign nation defaults on its debt. That seems counter-intuitive based on macroeconomic factors, but gives me more faith in my technical charts since I've been poised for the downturn in gold based on the technicals.

I must reiterate how keen I am on technical trading. The tape is only a "random walk" if you try to correlate it to so-called "fundamentals". There are too many fundamentals to keep track of, in my opinion. That's why I don't pay much heed to the analysts reports. But technicals track human nature, and that has proven remarkably consistent through the centuries (notice how Shakespearian characters are still recognizable today?). Now, there is an argument to be made that there are also too many technical indicators to keep track of. Fair enough. But at least they seem to me to be more transparent and less subject to manipulation than the "fundamentals". If you pay attention to the "government numbers", the CPI, housing reports, unemployment, etc., you'll soon discover that they just make up a lot of the numbers. Complete nonsense. The government has no way of knowing exactly what's going on economically across this big country of ours. Technicals track very few things, and only things that are easily verified-- primarily, price and volume.

Price and volume can of course be manipulated a bit by the big players (government included, who do you think gave the big investment banks billions of dollars to use to prop up the market with high-frequency trading?), but all that still boils down to human nature and technical charting takes that into account.

Now that I've blown off my excitement here in this post, hopefully I can settle down to finish reading today's articles and focus on my charts. I doubt today is going to be a good day to place any trades, but I'll be looking for ideas for next week. I wonder if we'll have a "Black Monday" (where stocks will tank on Monday)? My instinct says the government will be working behind the scenes to prevent that, but I'm certainly not going to take profits and close out my short positions today, just in case.