In my March 10, 2009post, I wrote “The cycle work and roadmap we are charting indicate that the patient may be starting to wake up—having been in its agonal stages and left for dead. When it turns, it could be shock and awe for a few weeks.”
Well, we got the rally and there may be more to go, but I think it’s time for a healthy retrace. The rally happened in a shorter time than we predicted. In the past nine trading days, the SPY has risen over 15%.
It is good to remember that we are in an age of “faster and faster forward” acceleration and cycles can compress. Moves in these markets happen with greater speed, and often with violence. The rally came in a shorter time than we predicted, but it came. For a retrace, we could see a “scary” pullback of 5-10% or so, but our cycle work indicates that this could be the prelude to a nice rally into early July. What will we watch over the next week or so? Volume patterns. If the markets can retrace and consolidate on lower volume, they will be setting up for a healthy up move while scaring out those who got a little too exuberant over the past 9 trading days and might find that they bought at or near the top.
Of course, no one knows the future. These markets have done a very good job of confounding even the most seasoned traders. There have been more twists and turns than a snake in the grass. Our “Whipsaw Index” is at one of the highest levels we have seen in some time.
Today, as we try to make sense of the action, it appears that—so far—the down movement is corrective rather than impulsive. This could be related to quadruple witching, but it also may reflect true buying interest under the markets.
One thing we do know is that traders must learn to be very nimble, take profits quickly and cut losses immediately. They must also have the courage to buy on weakness and sell into strength. This is easy to say, but very challenging to put into practice. Eventually, the markets will give a good trending movement and we will be able to take positions and hold on for a longer ride without so many shakeouts.
All in all, we like the action so far because the patient not only stood up and walked around for a while, but is now in physical therapy to get stronger every day. There will be setbacks and there is always the need to rest up and gather strength for the next hurdle. We are pleased with the recovery of this patient so far.
Baby steps are good.
Janice Dorn, M.D., Ph.D., is a financial psychiatrist and chief global risk strategist for Ingenieux Wealth Management in Sydney, Australia. She also offer trading consulting and coaching services via her Web site, TheTradingDoctor.com.