Saturday, January 14, 2012

Freaking Out On Friday.

If a fifteen hour non-stop flight is not enough to tire out anyone, I had to deal with a snow storm in the morning and two hour drive back to hotel. But after a twelve hour rest, here I am, catching up with what happened while I was in transit.

Seems that we had the start of our downturn on Friday. And then S&P came out with downgrade of most of Europe at the close of business on Friday. How is it going to play when the markets open on Tuesday? We can only guess. A severely overbought market, all indicators and parameters at extreme, divergences at every level, cycles down, retail sentiment at extreme bullish level and now the top of the cherry comes in the form the downgrade.  We have seen market gap open for the most part of January. Now we will possibly see markets gap down. How much and how far, we will have to wait and see.

In my last post ( ) I wrote that the high of Thursday was possibly a head-fake and when I am back by next week, I hope to have the pleasure of closing my short position profitably. Now let me keep praying to God.

We are as good as our last trade. And despite all our calculations and indicators/ parameters showing a change of trend, markets can remain irrational for much longer than we can anticipate. The last week had shown us that. In situations like this, we need conviction and patience. I have urged my readers to have patience and told them repeatedly that now is not the time to throw in the towel on equity short. I hope my stand will be vindicated.

I do not want to give you another lecture on how Europe is toasted and why everything will fall off the cliff. Because I do not believe in that scenario. We will get a sell off next week, which we knew will come.  No need of Elliot wave 3 or ZH crazy antics. The sentiment will turn from one extreme to another and those who were dreaming of SPX 1400, will now talk of SPX 1100. I also said that when others are greedy, we should be fearful and when others are fearful, we should be greedy. I was amazed that people were buying dips on Friday afternoon and willing to hold on to long positions on a long weekend and that too in a stretched market. That shows extreme confidence on the part of retail trades and we all know what comes after extreme bullishness.  All I can say now is that news is noise and do not base your trading on news.

Monday, the US markets are closed but it will be interesting to see how the Asian and European markets end. In the mean time, let me wrap up my trip fruitfully and I will join you by January 19 to participate in the American markets.

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