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Path of The Enlightend

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August 28, 2011 – Comments (0) | RELATED TICKERS: SPY

First off, I suggest reading this post from a guest on Zero Hedge.  Charles Hugh Smith repeats my own sentiments on a continuing bearish market and bullish-to-flat dollar.  Until I read his post, I was looking at the rising RSI and other indicators, and wondering if these were bullish signs.  Many times, I've seen such divergences breakdown, and turn against the "conventional" wisdom of technical analysis to my chagrin and concern.

I'm starting to see technical analysis as a type of religion, differentiated from fundamental analysis and the anarchy of casino-style investing.  To carry the analogy further, I see different sects within the disciplines of analysis: those who believe an RSI above 70 means simply "overbought", or those who swear by MACD histograms, the 50-200 Cross, etc...  In my own path toward Enlightenment (or Enrichment), I find myself walking with those who agree with what I already know, or appeal to what I'm searching for.

Indeed, Mr. Smith has reaffirmed my suspicions that we may still be in a post-QE correction, and more pain is to come.  The positive divergence of RSI and MACD on the daily charts aren't necessarily pointing to a bullish breakout of the symmetrical triangle (sorry, I'll call it a pennant now).  Those indicators are only confirming consolidation, that the market just had a strong impulse move and needs to catch its breath.  Where it goes from there really is anybody's game, as far as I'm concerned.

I did well swing-trading at the onset of the drop, and again by shorting the first bounce.  The pennant is too narrow for my far-sighted, part-time style, and I trust you nimble traders are profiting well for now.  I'm excited about buying/selling the breakout, but be wary of the trade-bots and market movers giving the headfake.  They tried to pull one on Friday, but notice how we stayed neatly within range?  Also notice a similar pattern in late 2008: a strong impulse-move down, followed by consolidation that first broke up then broke down.  

Here are the Charts - Trade thirsty my friends.

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