Monday, August 01, 2005

Market Habits

Sometimes a market develops a habit which you can exploit in your speculative activities. These habits typically don't last very long and I regard them as minor but useful additions to a speculator's toolkit.

Here is an hourly chart of the September S&P futures. I am very bullish on the S&P (1320-1350 by the end of the year). Shorter term I think a move to the 3/4 point of the current box near 1257 is imminent.

I want to point out the pattern of rising lows which I have underlined in blue. Of course such a pattern has bullish implications. But looking at this in more detail one finds each successive low in this pattern 3.20 to 3.60 points above the last low. So if this pattern is to continue we would expect to see the reaction from 1249 end 3.60 points or so above the last low of 1230.80, namely at 1234.40. The reaction low so far is 1236.00 and frankly it looks to me like the market will not even drop as low as 1234.40.

In this kind of situation one has to ask if holding out for a better entry price ( in other words, waiting for 1234.40 to be reached) is worth it. Well, I think the market will shortly be at 1257. The risk one runs by waiting is that you miss the move entirely. So I would rather pay up 2 or 3 more points to be sure that I don't leave 20 points on the table.

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