Bull trap or Bear trap?

Posted on Posted in Daily Blog Post

How is that possible for Stock to continue hitting all time high on this moribund world economy?

Ten trillion dollars in money printed and deficit spending are cheering all investors and traders as Dow Jones Industrial Average hit a new life time high...How long it can continue? a question needed to be asked. Isn’t it ? Here is the answer:

Massive monetary stimulus from the world’s major central banks – U.S., Europe, Japan and even China all help propel the stocks higher and higher without any sign of abating yet. It seems that all fundamental economic problems have been solved. But I strongly warn we have not decoupled from the reality of a moribund world economy. Some attributed to the strong earnings report but I expect that to be just a “Mirage” in the 3rd quarter of this year. I always question how the Thomson Reuter or other rating agencies come up with the forecast before the earning reports of the companies are released to the market.

Almost all traders and investors anticipates a strong economic recovery but the truth is global economic growth is still in a cycle of anaemic growth. Last quarter, U.S barely register any growth, Euro Zone and Japan are back to recession and latest report show that China is slowing down again, therefore the current optimism of financial markets may prove to be a ‘premature”.

However, you have to note that market sentiment is driven by the human psychology –fear and greed. And now, we are in the “greed mode” – thinking that it is so easy to make money in stock market. Does it mean that stock rally will continue to surge higher from today. Well, it is still possible. I am reminded of the following words of wisdom from the economist John Maynard Keynes: The market can remain irrational longer than you can remain solvent. Must always learn when to exit and never get trapped in a “FIREROOM” no matter how bullish is the market.

Dow's 7-session winning streak is longest in nearly a year

My technical analysis is figuring that SP500 is near to the temporary top of 1565-1570 soon, .may be today. The best it can go is 1600, a psychological number. Short Term cycle timing is at the point of turning down at anytime. If such is the case, traders should exit by now. I always remember what legendary trader Jesse Livermore said: never try to exit at the top, always leave the last 10% to others. Having said that, back up the truck if DOW drop down to 13500-13700 for short term Long position. I only expect a quick and minor pull back now or in the next few days before it surges higher. Try to trade in and out based on Short term cycle turning point as I expect much volatility starting in April and May. May could be a dangerous month-perhaps sell in April -May and go away. Meanwhile enjoy the ride!

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