Legacy Funds

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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

What is India up to?

While all the talk has been about the Shanghai and its big rally for the year — not as much has been written about the Indian stock market. I am going to base the analysis here on the India Bombay Stock Exchange 30 Sensex index or $BSE.

I find the Sensex a bit more interesting here because although the Shanghai and S&P 500 retraced exactly 38% of its last move so far, the Sensex has retraced 61.8%. It has gone from 8k in March to 16k just recently before correcting and sitting over the 50% retrace at around 14.5k.

Over the weekend I posted on a global macro forum that the Sensex looks like it may have topped at the 61.8% retrace around 16k, with a huge gap to fill down to 12k. The 200 dma is down near 11k. I stated that it wasn’t a time to be complacent, but was then told by top market analysts that droughts and swine flu didn’t keep the Sensex from climbing. Well whatever the reasons, there is a huge gap down there that is just begging to be filled when I glance at the chart. I also mentioned a big concern is that just filling the gap or touching the 200 dma would be larger than a 61.8% retrace (corresponds to 38.2% on chart or ~13k) so that sets us up for a retest of the lows if not lower. Let’s analyze a condensed chart.

sc

The numbers are a bit hard to see, but the 61.8% retrace at the 16k level was hit and has been acting as resistance. If it punches higher than we are very likely to get to the highs at 21k. However, regardless of how hot markets are, they usually come down to touch their 200 dma at some point. Same thing with gaps, they usually get filled at some point. It looks like back in July the Sensex was trying to do just that but everything got aborted and all markets soared. Technically, that is an unfortunate event because now to fill the gap requires falling below the 38% retrace in the upper 12k. That puts a retest of the lows back on the table.

Of course, this is just the most likely scenario based on current data and no one or model can predict with certainty any event — just not a time to be complacent and to trade with technicals and serious risk management.

I trade the Sensex via IFN, and my models gave me a sell signal August 10th.

August 18, 2009 Posted by | Legacy Funds | , , , | 9 Comments