Saturday, October 24, 2009

The Rear View Mirror

Someone said that in order to be successful in trading we have to trade like Italians drive – without looking into the rear view mirror.  There is some misunderstanding of this advise – some think that no attention should be paid to history because it never repeats precisely.  Of course it does not … and it always does.  There is nothing new under the Moon – anywhere.  Everything already happened in one form or another. 

So what is the “true meaning” of “not looking into the rear view mirror”?

What happened yesterday or 10 seconds ago is a history for you – it should not affect your future decisions and if you are still “under influence” of the bad trade, or, experiencing euphoria after successful trade – you’d better turn your trading terminal off – one way or another it will affect your future trading decision and it is not always going to be positive influence.


Speaking of the history in a form it might have some helpful aspects a lot of people attempting to compare current market action with 1975 action.


2009-10-24_0902Scrillhog posted interesting chart yesterday and it sparked my curiosity (I am a Curious George after all)  as to how these periods will compare in terms of TD D-Wave.

For some reason I could only pull 15 years of SPX data, so I used DJIA instead.

Just as expected there are a lot of similarities of 1975 vs. 2009 rallies.







Based on quite similar in % terms of sizes of w1, w2 (which was very shallow – only 23% retracement) and w3 if history repeats to some extent then my expectations of steep correction in the form of w4 retracing 72% of w3 might play out very well.


But here is the more important “kicker”

1973 started the greatest bull market in history of American stock market and 1975 wave structure represents w2 of sequence UP on monthly chart.

(see this “really crappy video” which I posted on August 22nd 2009 here

IF that is what it is – then "P3” eagerly awaited by Ellitorians (AKA “Sheepless followers of Bobby Prechter who’s been preaching total collapse for as long as he lived) are going to be greatly disappointed and, indeed, liberated of the rest of their money.


As an added argument for “we are in w2 of new greatest Bull Makret” you can take a look at that “inflation adjusted” chart which hints that wC of A-B-C corrective of Grand Sequence Up has ended (or about to end) and market is searching for direction now.

That would play along so well with opinion of the only investor I pay any attention to – Jim Rogers, who (for one or another reason) firmly believes that “they will print so much money that market will go to the Moon”.  Only complete fool might deny that it is not what has happened and I bet they will yet to come with more “creative ways” to screw dumb Joe Six Pack who thinks that he is making money if market is going up.


I’d like to conclude this useless for me historical musing (I do not trade “years” – there is no worse “trend follower” than I) by saying that the main difference between USA of 1975 and today is that there is no such country as USA on the World's Productive Map. No manufacturing, no research, not even financial services which lost any credibility in this crisis.  We have NOTHING to offer now except for struggling services industries and quite possible USA is very close to becoming “Sweden Maid” supplier country very soon.  The saddest part is that since USaA has lost it’s long standing hegemony – there will be more and more difficult to satisfy enormous appetite for fossil fuels and the rest of “prosperity” will soon be gone.

But we still make some weapons – and I am afraid it will be used at one final point – that what history tells us.


Enjoy your stay


P.S. For those of you who ironic about “stocks going to the Moon” – I’d like to offer great read by Charles Smith.


P.P.S. Every time when I have to do that “New Post” thing I feel soooo BAD – there are so many great charts and very well thought out opinions in the comments section that I feel a lot of us will benefit if some way of “retaining” such comments would be implemented.

May be I have to create separate page and link to comments with more than, let say - “5 likes”?  What do you think?

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