Skeptical Traders Take Note
Are you skeptical? You should be. In this day and age, I believe it’s important to test and prove for yourself the effectiveness (or ineffectiveness) of different strategies.
Take the counting method to determine a market bottom, for instance. Since I originally shared this method, a handful of people have questioned its ability to predict a market bottom.
And rightfully so.
Case in point: The counting method has been satisfied twice since the September break-down… and yet the market has continued to fall anyway.
This week the DOW has satisfied the counting method yet again — and the S&P500 and NASDAQ followed suit today — but because the counting method has failed to predict a bottom the last two times, it’s hard to say whether or not it will be accurate this time.
What gives?
Well, the mystery deepens.
Our three different trading template flavors are all setting up correctly, but they’re all giving us different predictions.
- Our trend continuation templates are predicting the market is only testing the long-term bear trend with this current rally and we should be prepared for more down market.
- Our trend reversal template is predicting a reversal has indeed happened — that a bottom has been found — and we should prepare for an up market.
- Our pattern alteration template is predicting a horizontal channel is forming and that we should prepare for a sideways market and possible breakouts.
When we get mixed messages like this, we are in limbo until the markets mature into a definite personality (this is also referred to as a “balance point”). Only the charts can “tell” us what way to go. Guessing or speculating about the future isn’t a sound trading principle.
With that in mind, I want to share with you a video I found particularly good. In it, Adam from INO shows how he is using the Fibonacci Price Retracement lines to guide him in his trading during this current market reversal. It’s definitely worth taking 7 minutes to watch it now:
==> Click Here To Watch Adam’s Video Now
Can you do me a favor please? After watching Adam’s video, write your thoughts to what I just wrote in this post and what Adam said in his video in the form of comments below. I know what I think, but I’m interested in what you think. Thanks!
Enjoy!
A.J. Brown
David Butterfield @ 6:24 pm:
Thanks A.J. I like Alan’s perspective and agree with him - it is just a Bear Rally. I’m not alone in my thinking
Julian @ 7:00 pm:
I wish I knew if Fibonacci numbers were truly the way of the universe, or simply self fulfilling prophesies… ie human and software triggers for reaction because a Fib number happened to be reached? I guess I’ll never know.
Whatever the true cause may be, Fib levels often seem to have a degree of accuracy.
My own Bull/Bear assessment is answered by the question “What do I see in the world that is lekely to make business more profitable next year? Why would I want to invest in a business today? Today my answer is Bearish.
bru44 @ 8:15 pm:
Market has to put in higher highs and higher lows on the dailies before a low can be assumed.
Scott @ 8:55 pm:
Thanks for the post and the link to Adam Hewisons video, I belong to the MC and he usually has some pretty good stuff. Now back to your question.
I think that as far as the counting method goes, I would have to ask does it have a shelf life? Obviously it was satisfied and we formed an interim bottom (to me it’s the bottom for now until it isn’t anymore. That is until it reverses and it makes a new low so unless there is a time limit its the bottom). I guess the question is going to be asked, is this THE BOTTOM, I suppose that it could be but I find it doubtful and here is why. Old timers say that we are not going to see a real bottom until the 30 day MA turns North. I think that is a pretty good sign and I would further say that probably the market is guilty until proven innocent, and what I mean by that is a couple of things, first markets generally don’t let you buy the bottom meaning it doesn’t hang around in an area that is the bottom. We see things like reversal candles with long wick’s. I look at multiple timeframes and the weeklys and the monthly charts are not showing anything but Bear! So until they turn a bit I think this rally is suspect.
The recent lows of around March 6th and the 2-3 days prior tested an area. Although the MACD is up the MA’s are still pointing down. Plus we really did not have a climax volume kind of day and although I suppose its not always necessary I think in this case I would expect it…I’ve heard people say that well we just had a slow steady bleed so there was no big selloff left in the old market. Of course I don’t have any evidence to refuet that other than to say that in the majority of casese you see something like climax selling. So I think what we are seeing is probably a bear market rally.
Just my opinion but we are likely to see a reversal just as Adam has suggested. He has been around awhile and certainly I find his analysis credible.
Cheers
Scott
Vijay @ 9:46 pm:
Hi AJ
Your guess is right. We are in a limbo. The video too talks about the reversal or channeling around these levels before it retests the lows. My view is that we have to wait for a few more days and see how the markets behave before we can be certain what the trend is going to be. However what I observe these days is that the upside is not as much as last week. What I mean is the range is getting lower we are not seeing any 200 points in up direction. I am not sure if that suggests anything. Also I feel that there are more positive news coming these days which is helping the run up.
Warren @ 11:07 pm:
I only ask that you respond with your opinion.
1. Each move above the Fib. level weakens the chance for a retracement to the lows.
2. the market will ignore bad news, punish it. Presently good news helps and bad punish.
3. we are at pivotal points in the DOW, NAS, SP500. break above today is a real rally, less of a chance we’ll retest lows.
4. if we get a strong pull back, maybe retest lows, weak we move higher.
5. the market is unsure of itself, so should we. if we break todays levels and close at those levels, it could flag a major rally.
6. fundamentals has not changed, and the smart money know this, once the outlook for recovery seems to be later than sooner. we’ll get a major down move.
7. what concerns me is that the move up has been too fast, pointing to signs swing traders and a bear trap. we need steady waves up not this. big money want in but after a pull back.
Teddy Phillips @ 7:07 am:
Watched Adam’s video. I liked it. I have been interested in options a litlle over a year…
I am learning. It has been costly….I have yet to make a successful trade… anyway, I am learning more b-4 investing. THX
Irwin Tyler @ 7:33 am:
I’d like to see other Fibo forms (fan, etc.) to see if these concur with Adam’s standard Fibo form analysis.
David S.Y. Wong @ 8:36 pm:
I’m always reviewing information, methods and techniques for stock trading. I came to this site thinking about options trading. I’ve done options trading in the past but did not have success. It does have the advantage of leverage at the expense of higher commissions and more complexity.
I do short-term as well as day trading and I like to trade the stocks, rather than the associated options, because I can follow the trends better with the inter-day closing OHLC charts or day trading real-time charts.
Regarding the video, it is all very interesting talk about Fibonnacci levels and support/resistance areas. Day trading charts also exhibit the chart patterns and levels as found in inter-day charts. I see them enough to appreciate the support/resistance levels because I trade on them.
I use a trend following system watching for the momentum of the stock and reversal points. I just trade in and out, long and short, as risk assessments dictate.
There is thought-provoking material here and I will take more of a read.
James Caruso @ 2:54 pm:
I don’t realyy think that any of the “experts” the Fibonacci tool or any other tool can predict accuratly which way the market is going. All of the indicators are too broad and because of this they are misleading. We are always dependent on indivual stocks and their performance and this type of information tends to overshadow and confuse the reality of the individual investments. Even when most are going down some are increasing in value. Which ones…
Alan Ellman @ 6:53 pm:
Excellent work! The video is important to demonstrate to your readers the importance of market tone when making investment decisions. I agree that market analysis and historical market trends during recessions point to one more bottom before the next bull market.
I sell covered call options and have been still making decent profits utilizing this information. Even in bear markets there are stocks and industries that perform well. Using sound fundamental and technical analysis and selecting the best strike prices is the formula for success. This isn’t rocket science! Lately I have been selling I-T-M strikes.
Keep up the good work,
Alan Ellman
charles behrens @ 2:11 pm:
yes, I want to learn to trade options successfully.
Billy W. @ 8:26 pm:
I’m a little late on commenting on this post but I thought the video was spot on.
Just to add, now that it has reached an almost 80% retracement which in my experience shows it has an 80% chance of retracing 100% of the last leg down.
Good stock to watch is Visa (V).
Been in a constricted price range on both the weekly and daily charts with Bollinger Bands very tight around the price action.
Visa had some strong upward movement combined with an inverted Head & Shoulders pattern on the daily chart.
With pre-Easter week in motion expect volume to be light but keep an eye on it if it turns into something.
Overall, I personally remain bullish but will let the market tell me what it wants to do.
Good trading everyone.
Alan Ellman @ 9:26 am:
A.J.,
This a quite a unique and historical time in the stock market. Just tune in to any financial network and note the diiverse opinions given by market experts. Market pyschology will play a major role in the eventual turnaround as trillions of dollars, currently sitting on the sidelines, make its way back into the stock market.
In my view, another key point to factor in, is that historically the chart pattern of the S&P 500 during recessions show three distinct bottoms. We have had two so far.Based on this, Adam’s assessment makes sense and caution should remain the name of the game.
Keep up the good work,
Alan