I’ve had a lot of friends these past few days ask me what is happening with the stock market. It’s pretty complicated but it comes down to a few things. First off, the run up in the stock market following the 2008 financial crisis was the result of Quantitative easing measures by our Federal Reserve and government. This added liquidity was meant to go into the equity markets to help prop up falling prices. This in turn would help stabilize the market and provided the added wealth effect to make people feel as if they were more wealthy, which in turn would cause them to spend more money, eventually stimulating the economy. So what happened? It was all a bunch of crap. Has our economy gotten better? No, its getting worse and people are starting to realize just that. Not to mention our government has been spending way more than they can afford to. I believe we are on the edge of entering another recession, if we have not already done so. People are leaving the QE party fast, they just want out as you can see from the past two weeks of accelerated selling pressure on the markets.

How will the future play out? I believe things will only get worse from here out. Thinking of the overall psychology of the situation, you have many investors watching their profits erode before their eyes. In the back of their minds, you know they have the picture of the most recent financial crisis in their minds. They do not want to get caught in another situation like that so they will be forced to sell out as they see the market accelerating quickly to the downside.

I believe tomorrow (Tuesday) we will get a capitulation sell off, where everyone and their mothers are heading for the exits. You will be able to clearly recognize this happen. The selling will be gradual and start to speed up and soon enough things vertically fall until everyone who wanted to sell has sold. The selling pressure quickly reverses and heavy buying pressure comes into the market. In this type of tape, you won’t be able to get hit on the bid for stock and must pay up for it. That is when we will have reversed. I’ll look for a situation to play out like this tomorrow.

It is important that you are able to stay in the game. In today’s trading I was up over 1K shortly after the market opened but tried buying the market on what I thought was the bottom but every time I lost. I was back to zero in no time so I forced myself to sit and wait and NOT trade. After seeing a capitulation set up late in the afternoon, I was able to enter into good risk reward trades and quickly made over 2K in about a half hour, saving my day. Keep yourself in the game, there will constantly be opportunity in this market.

Stocks that I’ve been looking at for reversals to the upside are: $TIF $LULU $CAT $BIDU $COH $OIH $GOOG $AAPL $TNA

Über den Autor

philipp_und_valentin

Kommentare (2):

1. 

   Walter said:
   09/08/2011 um 20:39

   I think that’s the end of buy and hold,
   at least for now…
2. 

   Philipp said:
   09/08/2011 um 20:43

   the whole year buy and hold was dead (except leading stocks)