Hello traders and MarketClub members everywhere! Just this morning I was thinking of an essay I had read many, many years ago. The intriguing feature to me was the headline which read, "They Do Ring A Bell At The Top Of The Market."
Well, I have to say it was an intriguing headline which got me to read the article, perhaps like you're reading this post now. The essence of the article was when interest rates go up, they usually signal a top in the market. As we all know, we have had unusually low interest rates for a prolonged length of time with one QE after another. All of which has boosted the stock market, but I believe the jury is still out on the economy.
With the end of quantitative easing, it's only going to be a matter of time before the Fed begins to raise interest rates. So the question is, how is that going to affect the markets? On one side of the coin, you can argue that it is only going to be good for people that have fixed incomes and rely on bonds and interest-bearing instruments. On the other side of the coin, will investors be willing to risk hanging in the market if they can get a return elsewhere with little or no risk?
That's a dilemma for every investor to ponder in the weeks and months ahead. The reality is, the markets generally tend to signal what they want to do in the future. Call it perception, momentum, or by any name you want, but the market can only do three things in the future. It can go up, down or sideways – that's it. I know I've said this many, many times before, but that's the truth.
This, quite frankly, is where technical analysis shines and is a benefit to every investor.
Let's take a look at some well-known technical indicators that could give us clues to the market's future moves. It could be that a long-term bullish trend line gets broken to the downside or the market moves below a 200-day moving average, all of which would be perceived as a negative market. It could also be that the MACD indicator creates a negative divergence and crosses over to the downside. The bottom line is, technical analysis is going to come to the rescue far faster than the fundamentals are going to tell you what's going on.
At the very top of the market, the fundamentals always look great and so do the technicals to a certain degree. But the technicals will diverge far, far faster than the fundamentals as the markets tend to look out 6 to 9 months into the future.
If you've read any of my postings before, then you know that we rely on our own proprietary technical indicators, the Trade Triangles. I can't begin to tell you how wonderful it is to have an indicator that has proven itself time and time again in the real world in catching big moves to the upside and avoiding disasters on the downside. Only when you have this type of confidence in your indicator whether it's the Trade Triangles, the MACD or the RSI, can you really begin to generate the kind of confidence you need to trade successfully.
In today's video, I will be looking at the markets as well as a couple stocks that look very interesting to me. Plus, I will be on the hunt for a couple of stocks using our Smart Scan technology.
If you'd like to leave a comment, please feel free to do so below this post. If you have any questions about markets in general please don't hesitate to post them on the blog and we will do our very best to answer them as quickly as possible.
Every success with MarketClub,