One Must Respect The Market

One must respect the market when it speaks. In the business of trading, it is not about being right or wrong on calling the market, it is about making money and preserving capitals. When the market tell you that your assessment is incorrect, you must respect it and adjust accordingly. Since last Thursday when the DJI closed at a new low without having many broader market indexes making new low, and without having many market breadth indicators dropping below their Nov. 20, 2008 level, the market was signaling it has formed an internal market bottom. Today, some of those broader market indexes such as the SP500 and the NYSE Composite made new low along with the DJI. Due to these new low, I have abandoned the cautious bullish stance I took since last Thursday and revert back to being bearish. Since the market has not send out a clear signal that it has bottomed, and with some broader market indexes falling back in sync with the DJI, I must respect the market and trade within its primary trend..DOWN, until it say otherwise.

Today the DJI made another confirmed low. This mean a lower low for the DJI is yet to come. Therefore, I will monitor DJI for trading opportunities on its ultra-short ETF DXD. As the market continue to head lower, gold will be the defacto safe haven for those that seek it. This will make gold continue its climb to above $1000 an ounce. I will continue to monitor gold for trading opportunities on its ETF, GLD. I will stay away from the QID and SDS, the ultra-short ETF for the Nasdaq 100 and SP500 respectively, until the market signals are clear to me the broader market and the Nasdaq are going lower. I would rather miss some trading opportunities than getting trapped.

Here's how the charts look after today.

The DJI closed today at 7114.78, which is below the 10/9/2002 closing low of 7286.27. The DJI today is only 723 point away from the 4/11/1997 closing low of 6391.69.



The SP500 broke the Nov. 20, 2008 low of 752.44 and closed at 743.33. It is only less than 6 points from the next closing low of 737.65 that was made on 4/11/1997. If the DJI reached the 4/11/1997 level, the SP500 will be much lower than 737.65.



The Nasdaq is still above its Nov. 20, 2008 of 1036.51. It closed at 1128.97 today, almost 100 points above its November 2008 closing low.