Venda do Novo Banco pode representar 8% do M&A na banca europeia este ano

[Camisa Roxa]

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[Camisa Roxa]

TUESDAY a.m.
February 11, 2003




Advances and Declines
by David Nichols

First off, I made a strange typo in yesterday's report, where I said that we are "not" sitting on a nice little profit cushion in our Rydex positions, instead of what I meant, which is we are "now" sitting on a profit cushion.

Here are the charts again:





I like this profit cushion, because it gives us the breathing room to let this position develop fully, if it's going to. The key to any successful trading methodology is "letting your winners run", as in most good trading methods a large chunk of the gains are delivered by the occasional spectacular position.

This notion of letting your winners run and cutting your losers off quickly gets a lot of lip service. But in reality, very few people have the discipline to stick to this. Ironically, our tendency is to do the wrong thing, getting the greed and fear parts exactly backwards.

We tend to get fearful when we have profits, and are very quick on the trigger to book them -- when instead this is actually the time when we should be greedy . Conversely, when a position goes against us, our tendency is to then go into denial -- instead of feeling the proper amount of fear, we hang in there hoping the position will come back and bail us out.

It's almost comical how market experience teaches us that every instinct we have is wrong. I like to joke that the markets are like golf in this respect, in that everything you think is going to work, instinctively, is actually diametrically opposite of what you need to do to be successful.

So I'm not sure if that typo was my subconscious screaming out that I was worried about the potential for a counter-trend rally -- which actually did develop yesterday -- but I zoomed right past that typo on two read-throughs. I didn't even see it. Sorry about the confusion.

Short-term advance

When you're betting with the mid-term downtrend, as we're doing now with our Rydex positions, what we're actually doing is making a calculated bet that the short-term decline phases are going to outpace the short-term advance phases.

The market oscillates in every time-frame, from the one-minute chart all the way up to the monthly and yearly charts. When we pick a time-frame to trade, it's part of the bargain that the market is going to oscillate underneath our position and chosen time-frame. So if we're betting on a mid-term decline, we know that we have to live through short-term advance phases.

So far, this mid-term decline has performed very admirably in terms of the declines outpacing the advances.



The advance phase was a weak, sideways move, which simply dissipated the energy from the big thrust down. The next decline phase was again stronger. Now the markets look to be cycling into another short-term advance phase. If the mid-term decline is still in charge of the action, then this short-term advance should be weak and halting, setting up yet another plunge down to lower lows.

If however the advance phase starts to get some traction, and really starts to move to the upside, then we'll know that the mid-term downtrend is in jeopardy, and a new mid-term uptrend will be taking over.

So that's what we'll look for now.

Sentiment Dashboard
by Adam Oliensis



SENTIMENT TANK: The tank backed off just a hair but remained at 81% on Monday. Once again we had unusual activity in the options market as the Put/Call Ratio rose to 1.14, which suggests an urgent demand for put options. However the VIX, which would normally rise when demand for puts rises, fell by 2.7%. There are times when the usual correlations break down. That doesn't mean the correlations are useless. But it means we have to take a look at why they're breaking down to better understand the market.

In this case part of the de-coupling may derive from some unusually large put selling in the QQQ leaps puts. Whoever's doing it isn't done yet. It will be interesting to see what happens when they finish.

SHORT-TERM: The hourly gauge flipped into an advance phase on Monday morning.

MID-TERM: The mid-term gauge progressed from 81 to 85 in its downtrend. The trend is very mature. In the next 2-3 days we should either see this gauge flip over into an advance phase or else we'll get the last big whoosh down in the market to our downside targets. Our Confidence Diffusion Index (CDI) clicked back two points to 4. Tuesday will be a key day. If the CDI regresses to 2 then we'll very likely get a mid-term buy signal. The other possibility is that the move back from 6 to 4 is just giving market a chance to breath before heading for the big whoosh.

LONG-TERM: The weekly gauge advanced from 33 to 43 on Monday. That was largely a function of what fell off the back end of how this oscillator is calculated. The weekly CDI clicked down by one point to 5.

The strength of the current hourly advance will be key. The hourly advance is now about to bang its head on the mature mid-term decline. Who wins that collision will determine whether we get the big whoosh or a reversal of the mid-term decline.