market bouce of gap support?

Discussion in 'Trading' started by BuddhaTop, Oct 23, 2003.

  1. TD80

    TD80

    Great question, sorry for the long wind but I would like to answer this question a thoroughly as possible.

    Given the following criteria: For position sizing you factor in relative volatility of a given index to a given stock, and are playing for a swing and not a daytrade. I would say in this current short term (5-10 days) timeframe, buying one, or preferrably a group of strong stocks will be more advantageous than buying the indices (currently).

    The reasoning is quite simple. The major averages are currently in an uptrend (therefore I suggest trading individual stocks or a basket in the bias of the overall trend). However, we have had some real distribution on the ETF's on the various averages on this most recent pullback. This implies either a small breather to shake things up, and then a strong resumption up, or (from my analysis the more likely case given the current situation), it marks the early signs of this uptrends demise (likelihood of making a new significant highs before a range or real downtrend correction: low).

    Now what I've said is that the index could go up or down, so what's new under the sun?

    Given the above statements I am still cautiously optimistic given the trend is still, from a price action standpoint, intact. However I think the overall market is losing momentum and the steam is gone for now (most likely due to tax selling or other seasonal factors). My sentiment is not like previous pullbacks in this rally that were very orderly and perfect overall buying ops for the indices.

    Assuming you would choose to act at all, the case is:

    1. Buy indices and/or etfs/baskets that are mimicking index nature, given top-like volatility, distribution (heavy selling), large gaps agiainst trend, and skittish support on the pullback.

    2. Buy stock(s)/basket that are not losing momentum, not gapping down severely, not showing signs of distribution, and are getting plenty of support to make their pullback smooth and on relatively low volume.

    If a stock or group of stocks are strong, the chance of a skeleton coming out of the closet without the stock first demonstrating weakness is pretty slim given my view that the market knows more than people give it credit for. Event risk is always there, so if things go to hell in a handbasket, it shouldn't be any more painful than an index trade if you did your position sizing correctly.

    Goodluck,
     
    #11     Oct 27, 2003
  2. lindq

    lindq

    I haven't the slightest idea what any of this means. If you wrote a trading manual you would make millions.
     
    #12     Oct 27, 2003
  3. TD80

    TD80

    The most simple approach in many instances is the most difficult to explain! If I simply said "Buy a basket (or individual) of stocks that are acting better on this last downswing than the averages and are still in an uptrend", it would turn into a barrage of the "40-post skeptic and answer session" variety. I find that many here and elsewhere do not want to do the legwork and answer some of their questions on their own.

    I'm happy to take the time when not trading to attempt to explain my anlaysis on the market in hopes of both helping others and helping myself through a sort of introspection. I have never claimed to be a teacher, I simply do.

    As far as a book is concerned, I'll keep your comment in mind. Millions for writing a common-sense approach to exploiting the herd seems like a good trade.

    Goodluck,
     
    #13     Oct 27, 2003