Legacy Funds

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Going back in time…

Here is a daily chart of the Dow from 1920 to 1940 to get a historical feel of what happened 80 yrs ago.

djia19201940s

It is hard to get the true feel for the size of the rallies and the declines, so referring back to the chart from previous post http://seekingalpha.com/instablog/405677-suzanne-h/30970-does-a-huge-rally-always-mean-the-bear-market-is-over will provide the percentage moves and dates.

October 15, 2009 Posted by | Legacy Funds | , | Leave a comment

Still waiting on confirmation — very close to getting our answer

The SPX did end up breaking the uptrend line from the March lows on a log chart. It is still holding on a linear chart. Disclaimer, I give more credence to log charts as they show a percentage move more adequately than a linear chart. So on a log chart the SPX broke the uptrend line, bounced off the 50 dma, and now we are retesting the broken uptrend line.

spxline

This is an ideal area to scale into shorts with a stop above the uptrend line. Failing to get back above the broken uptrend line tells us the momentum is starting to be lost, and declining volume is another red flag providing confirmation that a correction has begun. However, getting back above this uptrend line and clearing 1090 can give us a run to 1120, and clearing that can give us a very quick spike to 1200. So as always, risk management is crucial especially at potential turning points.

Remember, and let’s not kid ourselves, we are trying to pick a top here — something that only the best traders can pull off successfully very few times in their careers. Even then, there will be a few tiny losses when the top turns out to not be the top. Playing this without risk management in place is never advisable, and will result in losses even if not in this particular instance. Sometimes that is the worst thing that can happen to a trader — the market rewards a trader for taking foolish risk without any management in place, the trader becomes complacent and throws caution to the wind only to get whacked later with a much bigger loss. Never abandon risk management, no matter what the technicals or even fundamentals say.

October 12, 2009 Posted by | Legacy Funds | , , , , | Leave a comment

Does a huge rally always mean the bear market is over?

Almost everyone is aware that the stock market crashed in the 1930’s during the Great Depression. What most people may not be aware of is that it didn’t crash straight down but rather had multiple strong rallies followed by several declines.

There are many reasons that our current rally is still only a bear market rally, but in the interest of time will just show a table from the decline back in 1929-1932. True the market lost 89%, but it was not in one big decline as many possibly envision. There were big rallies before moving on to lower lows:

29 to 32 chart

Courtesy sovereignsociety.com

However, looking at the rallies and declines in the above chart should get one to at least consider we may have some unfinished business on the downside ahead of us. Time to be careful, we are very close to the end of this rally, most likely 1100 to 1120 as maximum upside — though not a guarantee and we have to manage risk and play the hand the market deals.

October 9, 2009 Posted by | Legacy Funds | , , | 2 Comments