Sand In The Line
Lately, I have received numerous
e-mails asking me questions that fall into two
entirely different categories:Â
- Eddie, what indicators are you using to make your incredibly
accurate predictions?
- Eddie, more than once in the past, you have drawn a line in the sand
that the market has penetrated. Now you have a new line in the sand. What line
in the sand should I base my trade on?
Obviously, different people have different interpretations of the charts I
present in my column. However, the reply I sent back to people that ask these
questions goes something like this:
In my mind, the trendlines and other classical chart patterns I use
are useful. But I don’t present them to make predictions. Even though you
will often see the market and individual stocks make sharp moves off these
patterns, you should treat them no differently from any other kind of
support/resistance: Innocent until proven guilty.Â
In other words, none of this (and I know Carolyn Boroden says this
repeatedly) constitutes trading opportunities. Rather, these are price levels
at which you look for signs that a trade with good risk/reward characteristics
is taking shape. The question you might ask at this point is: Why not simply
ignore support and resistance and keep your eyes open for trading setups
continually? The answer is: Of course you can do that. But many traders,
myself among them, would insist that a mastery of identifying support and
resistance levels gives you an edge.
So, both categories of traders I’ve cited above are missing the point.
These are not predictions, although the movement that occurs off them may seem
impressive, as it did yesterday in the semis following my Monday
“Chart of the Day,” as well as the one from last
Friday. Secondly, a line in the sand is nothing more than that. It can
easily get crossed. And it happens all the time. You must put together your
own trading strategies, pattern recognition, and other technical tools and
confirm that something of importance is happening at the junctures that I bring
to your attention.
That said, let’s see where the action is now:
Semis are holding onto gains as a whole,
but easing back a bit. Intel
(
INTC |
Quote |
Chart |
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PowerRating)
is still looking strong, bouncing off a combination of its five-year trendline
and Fibonacci support.
The S&P 500 is finding support at the Oct. 1999 lows. This
is support that everybody knows about, so you want to be especially wary of
concluding too much about its longevity of this support.
The support on this six-year trendline in the Nasdaq continues
to hold. But in the larger scheme of things, two days is nothing. We’re in a
downtrend, and it will take weeks of positive action for the market to prove
itself.
The bounce is also seen coming off the lows of this
downtrending channel.
Is it time for us to start playing “Ride of the Valkyries?”
Sure. But keep your finger on the “pause” button.
Till Thursday,
Eddie