Tesla may have gone up pushed by a whale and bulls have bought hysterically the stock. But it was stopped… by a reaction line! Just kidding of course, but it is worth noting that the action-reaction theory works whatever market conditions to predict somehow where market hiccups or changes direction!
Market fundamentalists estimate the real value of Tesla to be around 240$, meaning it was somehow well priced beginning of July before acceleration. Shorting Tesla is an interesting bet but be careful, trend is for now up and very strong, volatility needs to decrease first so it can go up for a downtrend!
No need to say I am very bullish on Tesla in the long term but they need to produce and sell more! Back to basics!
Ferrari on the opposite did not benefit too much from recent rally, a small 50% gain! Because of small volumes and many gaps, I am working on the 3-days graph! Stocks still bumps on random walk lines and Ferrari was also stopped by a reaction line. Ferrari is a totally different business: you order one now for 100k$+ and you will be delivered in 2022! The correction is likely an opportunity to get extra stocks if you can not afford the car itself (even second hand units can be more expensive than the brand new ones!)
I will follow this idea in coming weeks: short Tesla and get more Ferrari stocks with the gains! Careful! Market needs to be re-assessed with each new data and I may totally change my mind. Market is not ready for now.
DragonTrader is still on vacations until end of August, but market commentaries still come for another two weeks. Totally free as usual!
S&P500 has crossed blue down sloping reaction line since last post. The money is still flowing in, so I would not be surprised movement still continues for a while. Should it reverse during my August vacations, please alert so everyone can profit from a little short!
As the Fed is printing lots of money, it flows in the stock market but also in Gold and possibly some cryptocurrencies as well. Diversification? Possibly. Or you need to see the other way round: as you print more money, the value of money decreases, so price of Gold goes up! Volume of available gold does not change a lot year over year, and countries wealth (GDP) is going down due to little virus, so gold is safe harbor! See, if dollar has been disconnected from Gold more that 45 years ago, people still think in gold terms!
It is even better for Silver, but you need to ask a drunk economist reason for this strong uptrend!
I was moderately bearish on Bitcoin but the graph starts to show something different. First, the money is flowing in as shown by accumulation distribution indicator and there is now a hidden divergence with WAD. Makes me think that an up move is possible, the post-halving rally everyone has been expected for a while! Tip: look at Ethereum, might be even more interesting!
If trading is your only occupation (not my case!), then life can be quite boring. The fact is you only need to wait… until there is a crisis or some excitement somewhere and then you enter the market, make your gains and go back to your boring life! Patience is key!
Summer time should be dull, shouldn’t it?
Anyway, a good time to look at all the funny articles on internet. Look at those two brilliant analysis:
What? One says 60k, the other one 1.8k? Predictions, pretty much like conspiracy theories, are fun to read but you can not make anything with this information!
Fact is bitcoin is enjoying for now a cool summer, on a small downward slope. Capital is flowing out quietly but Bitcoin stays above the random walk path. The objective for down move is about 8100$ but I do not see enough bearish energy. Should it resume the uptrend, then objective 10250$, not that much. Quite boring for crypto!
S&P500 continues on to next reaction line, which could be reached… next week! Maybe some sport is coming… or not!
As for the Nasdaq 100, a warning line was reached yesterday. As for S&P500, there is divergence with bottom indicator (the WAD2.0 if you follow!), only a warning of course. I hope you are in since mid-April, a stop at 10k is now the best idea you can have!
That’s it! Until next time, enjoy the summer, stay away from harmful virus and trade safely!
I wrote a warning on Monday morning (see previous post) that passing a reaction line is a sometime precarious event and markets usually make tops or bottoms on this occasion. Please remember that tops are mirrors of bottoms from the past. The accuracy is not perfect but if you ‘add’ the gaps, then you fall back on your feet!
Similar to previous market action shown in ellipse, S&P500 has moved above the reaction line and then fell down back on it yesterday. In theory, our drunkard can walk down to 2800 and 2685 afterwards. The uptrend is still there, so you should not worry too much and it will open some buying opportunities on many stocks already in up-trend.
A quick note about comments
While I see genuine comments, I guess many are also an opportunity to post links to your own business. While I do not mind which business you are in, I do think that relying on chance of someone clicking on your name in the comments section is not the best way to get opportunities for you. I do understand that even one click out of ten thousands can make your business profitable but it clearly does not help the blog writer to have comments from ‘b.tt pl.g’ or ‘huge cl.t’. Sorry you should not read this if you are under 18. I am not after huge audience, only people authentically interested by the subject. From now on, please consider a cool name like ‘Warren B.’ or ‘Barrack O.’ and you can still link to your site if you wish. I will be more cautious from now on when validating comments!
Warning signals conjunction are always important to watch!
The kagi line is closing to Bollinger upper band. From there, it can go through or reverse. In any case, it is worth securing partial profits or revise stops upwards.
On candlestick chart, price is also closing to reaction line shown last week. If it goes through, there is virtually no resistance until next one. Pretty much like a plane taking off, speed is important for air support under the wings. The opposite scenario is a sliding down the reaction line but we have yet to get a confirmation before looking deeper this assumption.
Two synchronous warnings should wake up your skeptical bull mindset!
Hello! Mister Market is very optimistic, has gone through the last 2 reactions lines and has stumbled also further from the random path.
This optimism is really puzzling if you are looking at the news on TV but remember that S&P500 is driven mainly by the GAFA’s and Internet sector is big winner of the pandemic. Home office has proved a success for many companies and is going to be a source for cost reduction in the months ahead. Crisis are always the time when creativity works best and remote office was a solution only waiting for the opportunity to prove itself useful in crisis and at any all time!
What do we need to do now? Of course, keep a close watch on index evolution as it scrolls through upcoming reaction lines. There are then many stocks that are still low without any reason other than cash has flown to immediate winners such as Amazon, …. The other sectors such as 5G will restart shortly, American Towers is already making new all time highs! Fasten you seat belts and enjoy the rides!
I am sure you have noticed by now that this blog is totally original and I will not cover the basic indicators, their usage, … There are millions of sites that copy/paste from each other and you won’t learn from them anything but the basics. It is always a good idea to come back to basics, but profitable trading is about having an edge, so none of basic indicators work for very long, when too many traders are using one, market becomes sort of immune to it!
With this blog, I aim to help you kick some ideas down the road and if you wish you can share on this blog. Maybe it does not work for you as expected, but it may inspire others. Just drop me an email (see pinned message) and I will publish your article!
Let me share a story. For very long years, I made a few trades per year and had absolutely no idea how to get in or to get out. so I did some buy and hold based on randomly selected analysis, watching the stocks loose as much as 50% then going back up… And one morning I had an idea: imagine a very tall tree and there is a big coconut hanging from the top branches and a monkey happens to walk by and being thirsty. The easiest part of course is climbing, reaching the top, secure yourself to branches with feet and one hand while extending the other hand to take the fruit. Then suddenly, one branches cracks. You are still hanging from one branch with one hand but you are still safe, sort of! But for how long? The second branch is bending now and you must make a decision: free fall to the ground (not a good idea) or jump down other branches. This is how I started designing my first trailing stop! See? Let me know how you come up with trading strategies, fun to share and comment!
I still have plenty of ideas to share. I will not share publicly the details of my very best strategy because I am using it, but there is no problem sharing older research material that you can choose to improve on your side and share with the club! Just to give you an idea, we will look at in future posts:
Markets can trend and this is due to their random nature. See here.
The randomness can be measured by volatility. The raw volatility (be it 1-day momentum, True Range, …) is the one to be analyzed and understood
You should not try to confirm stubbornly a strategy because cases where your strategy does not work surely exist and might even be the most profitable cases! Market’s got some sense of humor :-))
Now, as title implies, let’s look at S&P500 and where it is going!
As a continuation from previous post, I have left the random walk path and you can see that our drunken man does not seem capable to go more that 2 steps away from the main path.
If you have read my initial posts, you know I like a lot Action/Reaction lines because tops and bottoms are often building on those. Here we are precisely with 2 solid blue lines across the path. Unless S&500 goes through forcefully, we are in for a reversal. I have included Accumulation / Distribution at the bottom, which is a good indicator when you have nothing better, just add a 20-days simple moving average. There is not much energy: look at the slope of price versus indicator! We need some very good news to move up now! So yes, I would wait a few more days to see where we are going and go short if confirmed for an objective at 2400. This is absolutely no advice!!!
