Stock Market Analysis

Thursday, May 06, 2010

We Witnessed History Today!

The Dow made history today (negatively though) with a historical intraday drop of 1010 points! To put perspective on how big a drop is 1010 points, it is big enough that if it happened back in any time before 1982, the market would have dropped to ZERO! However, such a huge intraday drop is definitely a clear case for quick arbitraguers to step in on and the Dow recovered a over 600 points intraday to end down by 347 points, which is still extremely ugly.

What happened today? Well, there are a lot of speculations but so far from the trading pattern and evidences, it seems like we had a "Skynet day" where computers attempted to take over the world. Yes, it was reported that most of these selling are triggered by machines doing the trading, not human. How the selling started is still a lot of speculation. Some say its an error by some fat fingered trader (what's the probability of that kind of error happening on a daily basis in a market with so many traders? Shouldn't such things be happening everyday then?) and some say its some new Hollywood conspiracy put up by wallstreet. No matter what the reason is, traders like myself should be more concerned about how to manage existing positions and move on. Good thing is my Star Trading System seemed to have picked up some dangerous undercurrents and have kept me out of directional swing trading for the past couple of weeks, so I sat out of the mess and smiled with all my profits made over the last 30 days intact.

So, what is going to happen next?

In a wierd way, I actually think this drop is badly needed. The market has been in an extremely over-extended intermediate bull trend with no significant consolidation along the way. This only make the market less and less tradable the higher it goes. We are badly in need of a strong, decisive, correction which will help this primary bull market grow further and I think this is it. No doubt savvy traders are already expecting the market to turn around from here as after market futures continue to point higher. In fact, tomorrow could see the bulls come back in a big way. So, no, this is not the start of a primary bear market. Never before has the stock market turned a primary bear trend after coming out of a recession and it won't this time round either.

For now, the Dow turns a short term bear trend, intermediate bull trend and a primary bull trend.




Chart of Dow Made Using Telechart. Want Your Own Charting Software? Download FREE Now!

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