Day Trader column for December 17 – 2013

The market did not follow through on the December 06 daily reversal but continued its move down.   This is a good lesson in not jumping in too soon, but waiting for a weekly signal and then a daily confirmation.   Again for this week to form a weekly pivot point it will need to close over one hundred points higher.

This would mean a strong performance from several top one hundred stocks.   This is possible as there is often a run up in the market at the end of most years, but not always.   

I don’t think we have seen the end of the move down and as things stand I will be looking to buy short minis on a reversal from any rally.

2013 has been a year of volatility and uncertainty in our market, characterised by low volumes in small stocks, false breaks, rising wedges and the completion of the fifth point on five point reversals on many stocks.   I suspect this volatility will continue until the market can see where our economy is headed in the next few years.

The index is still five hundred points above the uptrend line drawn from the 2009 low and as yet the banks have not broken the support levels talked about last week.   

As an aside BHP and RIO both fell sharply last week after the divergence formed the week before last.   Sometimes there is a delay of a week or so before the move indicated by these divergences comes to pass.   They really are a warning sign to beware of a change of direction.   However, I have not figured out any way to estimate the extent of any move from the actual divergence, but have to rely on other means to calculate likely targets.       

As mentioned above I will be looking to minis to trade until a definite trend is established.

I have not talked about them for a few weeks but I have been watching minis closely to figure how I am going to manage the trades.

Firstly I don’t believe it is worth trading lower priced stocks as there is very little leverage, so there is little value in trading minis over the actual stock.   The best value seems to be had trading high priced stocks and by that I mean stocks priced around twenty dollars or more as they are more likely to move a dollar or two over a short space of time. 

 Although they do not have a time limit, it does not mean they are a worthwhile alternative for the long term investor as the interest the provider charges in the form of an ever rising strike price soon eats away at your capital if the price is in a sideways pattern.   The holder also does not receive any dividends although the strike price is adjusted down to reflect the dividend.   What this means is any gains in price are not eroded by the usual price fall after a stock goes ex-dividend.   

On a final note for the year it is still possible we could see a big move up in the market before the fall from the five point reversals begin.

 

Due to Dec 24 and 31 falling on a Tuesday there will be no column for these dates, but I will be back on January 07- 2014

In the meantime I wish you all a Merry Christmas and a Happy and Prosperous New Year.

 

Past columns and information and DVD’s on my methods, are available at:-         www.thedaytrader.com.au   

 

Portfolio Position

 

Cash       $295,504

Shares    Nil

Total      $295,504