Have you ever been to listen to the media how important and well-dressed financial analysts explain what is happening in financial markets? And somehow, while talking, they tell you a story that you doesn't seem to understand and that makes you ashamed of your own misunderstanding. If this has happened to you, then please read the following lines to clarify together whether what is spoken in the media is useful to the audience. Let's start from here. In general, there are two basic approaches to understand financial markets. First and most widely distributed is called fundamental analysis of the markets. That's what we study in universities and colleges of economics. But how can we use a few sentences to explain the tens of thousands of pages theories and approaches that some of us were obliged to study during their education? Well, there are two basic concepts which underpin fundamental theory. First - people in their economic behavior are always rational, and second - financial and economic markets are driven by the same factors, namely the rational behavior of the participants. In other words, according to the so-called experts who we all have seen in the media, financial markets are always trying to balance. Well done here. We clarified the two main concepts, on which fundamental theory lies. Certainly, this approach has infinitely many sub-theories, but all of them are based on these two basic assumptions. The second approach is called technical analysis. Because of the increasingly intense pressure, academics are forced to implement technical analysis more and more in the learning process. And there are reasons for that, of course. Let me explain what are the basics in technical analysis - people are rational in their behavior only on economic markets. Financial markets participants take their decisions under the influence of emotions. In other words - financial markets participants seem to herd. According to technical analysts (among which I belong), the future price levels are projected in the previous levels. More simplified, markets draw repeating patterns that we call figures. After we determine at what stage the figure is, then, with high precision, we can tell what will happen next on this market. The time has come to mention what is the practical difference between the two approaches - fundamental and technical. Have you noticed how in medias constantly appears a well known and respected analyst who tells you the following: "Today stock indices collapsed because of the statement of the Federal Reserve President, or "The euro fell because of the huge Greece deficit" Can't you see that these people explain to us how and why something happens after it has already happened? That is the main advantage of fundamental analysts - they have become the best story tellers, after the story has occurred. It's like to tell you that it may rain outside, after you're already standing wet in the rain. I personally do not find this advice particularly useful. What about you? Technical analysis, in other hand, is the only method that allows you to forecast future price levels on the markets. And it is technical analysts over the years who were there to ring the bell about a coming market crash and economical crises. That is what I'm doing now before you. During 2007-2008 we saw only the beginning of starting deflationary crisis. In this period, world stock indices collapsed by approximately 50%, wheat - 67%, corn - 58%, crude oil - 71%. Last year we saw the markets recovery as necessary. Unfortunately, this recovery has extremely corrective structure. Even more - we're far far away from previous markets' historical tops. And these tops and only their breakthroughs are the only confirmation that the deflationary threat is over and the world economical and financial system is headed to another boom. At this moment, this scenario looks fanciful. Now we're standing before a renewed bear market. We expect again a collapse of stock market prices, precious metals, commodity markets and a strongly gaining US dollar. How can we protect from deflation? The most practical way is to not invest in these financial instruments, except the U.S. dollar. I expect even more bankruptcies in banking and real estate sector. If you have savings, do not rush to invest them. After passing the difficult period of several years, the value of your money (especially if they are in US Dollars) will be considerably higher. Then you will be at the right time for investments. Til then, leave your savings in the nearest cash equivalent. I realize that is not at all pleasant to be carrier of such bad news. But this is not just another talk and talk about media appearances, but about how we can get safe from the impending deflationary crisis. All opinions expressed are the result of professional analysis of financial markets.
Why a new high should make you stay cautious and not surrender to the extreme optimism ? Answer is given by the Dow Theory. On March 12, S&P 500 made a new high, surprising lots of technical analysts. The paradox is that some of them are now blaming technical analysis that it had lied traders and investors with its bearish perspective. Pople who blame technical analysis and Elliott wave theory at this moment are the ones who have very bad risk management and money management of their trades. In addition to that - technical analysis will give us the answer why the market is trying to confuse a lot of people, and in which direction the primary trend actually is. The answer is hidden in conventional Dow Theory. He said - I don't go for a bull market if I don't have new highs in the three major (at that time) stock indices - Dow Jones Industrial Average, Transportation and Utility. If only one of them is making a new high, but the others are not, stay cautious and wait for a reversal. Have in mind the Dow rule. We'll get back to it in a moment. Now, there are 3 major technical warnings about the widely proclaimed renewed bull market, and in particular about S&P 500. 1) That chart shows the price action from the March's low til now. Please notice the deeper devergence between the price and RSI. Even the new high is deverging the oscilator. That is a very serious warning that the trend is exhausing and it's near its end. 2) The structure of the rally that exceeded the previous high. The market reached the channel's upper shoulder and to complete the sense of exhausting, has an intraday divergence with RSI. 3) Let's get back to Dow rule for the intermarket confirmations. While S&P 500 and NASDAQ did exceed their previous tops, DJ Industrial Average and DJ Euro Stoxx didn't. What does that tell you. Well, at least that we should not be very excited about the new highs. Be patient. The world's major stock indices are about to peak and to start moving in the same direction very soon. That's all we're saying for now.
On March 16 I saw the following intraday picture on CAC40. As you see I opened long position. I had a target which I was looking for. Unfortunately you cannot see my critical level (stop order), because it didn't fit in the chart when I saved it, but my stop was some points below the bottom of wave iv. So, I had analysis, target and stop level. It was a little bit aggressive, because I expected the market to reach an important top soon. Despite of that I decided to take advantage from this intraday opportunity. Let's see what happened next. Full article here - *removed by Admin*
I'd like to post here an article with a lot of interesting charts, but unfortunately the post editor doesn't give the possibility to do that. That's why I'm posting the link to the full article, related with some of the major price actions in forex. *removed by Admin*
We're continuing the rubric Show me some Trade with the next article, presenting the chronology of a short position on Spanish IBEX35, that was closed this morning. But this time, we will make even stronger connection between a good technical analysis and the risk management that it gives. The post consists lots of interesting chart. Read the full article here. *removed by Admin*