Crisis Of Confidence...
It was certainly a revealing week in the US Market last week. Oil was down and so were stocks. This revealed a very serious condition... that there is now a crisis of confidence amongst investors and traders. Even though oil continues to retreat like an avalanche, investors and traders are not biting the bait. In fact, the more oil retreats, the more investors and traders are expecting a big rebound, taking stocks even lower. This is certainly a crisis of confidence as pessimism rules in the market.
However, there seems to be something stirring up in the economy right now which investors and traders have yet to bite onto... confidence seems to be returning to the economy as consumer confidence rebounds. If this rebound in consumer confidence is supported by some positive Jobs Report numbers and ISM index this week (see economic calendar), investor sentiments might just turn around. In fact, I would speculate that it might coincide with a double bottom formation in the Dow. Yes, I still think the Dow will visit the July low before rebounding into a double bottom reversal if the numbers this week turns out great OR make yet another new low, continuing the bear trend as the numbers disappoint. So, a great time to put on a long straddle? Maybe...
However, there seems to be something stirring up in the economy right now which investors and traders have yet to bite onto... confidence seems to be returning to the economy as consumer confidence rebounds. If this rebound in consumer confidence is supported by some positive Jobs Report numbers and ISM index this week (see economic calendar), investor sentiments might just turn around. In fact, I would speculate that it might coincide with a double bottom formation in the Dow. Yes, I still think the Dow will visit the July low before rebounding into a double bottom reversal if the numbers this week turns out great OR make yet another new low, continuing the bear trend as the numbers disappoint. So, a great time to put on a long straddle? Maybe...
posted by Jason Ng at 4:43 PM
2 Comments:
Yesterday you wrote that "An evening star formation is .... one of the strongest bearish candlestick signal especially Now you wrote: we may hit double bottom - so did you change your mind and are more bullish ?
Not at all.
When we say that a candlestick signal is strong, it doesn't mean that the chart is expected to move by a big magnitude in the expected direction. A strong signal merely means that the chance of the stock going in that direction is higher than usual.
So, these are actually 2 different things. What you are saying is magnitude whereby what I am referring to is Probability.
That is why there are no conflicts in what I said at all. Because the Dow has a strong chance of moving downwards due to the evening star signal, it can meet its short term support level and possibly form a double bottom. At that point a reassessment is necessary.
In investing, you never stick to a historical outlook and then stick to it like there's no tomorrow. Remember, the market today is an ever changing market where outlooks change extremely quickly. In fact, the market is slow becoming weak form efficient such that dependence on long term outlook of large magnitude moves are becoming more and more unreliable.
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