This could be an important message. After this email, I ll go back to business as usual.
My own psychology assessment:
- From November to December, I was looking forward to a major correction.
- Then with time passing and the market proving me wrong, my brain subconsciously started to build the opposite view.
- I know that when I change stance after 2/3months, there is a risk that is when the market makes the move I previously thought of.
- So yesterday, as 2150/April15 was starting to build as my base scenario, I realised I may have capitulated close to the rupture.
In normal business:
- There is support at 1990, 1930 and 1880, any of which could retain the market.
- In this condition and using the last 2year Pavlov behaviour, buying 1950 (+/- 3%) seems like a sound plan with target 2120/2160.
But, there’s a growing risk:
- At some point in the next few months, SP500 might fall 10% in one week (15/20% in total)... it could be soon rather than after widely expected completion at 2150.
A few things:
- Since September 2014, the moves are getting sharper in a narrower space.
- Large corrections have a 13days structure (3 weeks).
- It take only 5 nasty days to change the picture.
- The volatility is slowly pointing up and is diverging since June 2014.
Absurd reasoning:
- To climb sustainably, SP500 would have to change regime and move slowly again to achieve 150pts up over 3 months.
- This required change in regime remains to be seen and is unlikely as is.
- Also, it seems to me that the resistance becoming widely recognised, going back up to hit again around 2120/2160 would provide a too easy reversal target.
- Completion of wave 5 of 5 of 5 of III is a bit too academic. This wave is often missing from charts ahead of big reversals.
Risk: a crash in the next 2 weeks.
Dilemma: Draghi on the 22nd of January. It is more difficult to bear a short through supports with this coming.
Your thoughts on the subject are welcomed.
Trading:
- My initial plan was to unwind shorts at 2000. I may keep a portion of it now.
- Clearly I will not attempt longs other than in a very tactical fashion.
- Maybe the right thing to do, is to avoid losing money if the market falls but not necessarily making money on the tail of the move down as it will provide great opportunities in relative strength versus the market.
- If I had had this last policy in place, I would have made much more money in the last year.
YK
