Saturday, October 15, 2011

Are the Bulls Really in control of the market?

It's a tough question right now especially with all the news reporting how strong stocks suddenly are - it's hard to develop a bearish theme on the news. We will have to watch the charts closely in the coming weeks to see if technical support holds and what reaction the markets have to technical resistance should they continue to march forward.

While the markets march higher due to injections the real economy remains recessionary with high unemployment which currently under-reflects the real picture. While some banks are insolvent, low rates do not reflect the real market risk so banks that have money won't lend or are very selective about it. Low rates actually crimp credit after markets fundamentally crash.

What does insolvency mean?
Insolvency is when a business has insufficient assets to cover liabilities.

According to Wikipedia the definition of Recession: In economics, a recession is a business cycle contraction, a general slowdown in economic activity. During recessions, many macroeconomic indicators vary in a similar way. Production, as measured by gross domestic product (GDP), employment, investment spending, capacity utilization, household incomes, business profits, and inflation all fall, while bankruptcies and the unemployment rate rise.

Overall I think the current economic picture defines a recession and in looking at the banks many or insolvent or unwilling to loan money into a recessionary scenario where there are more risk. Banks in general are in the business to make money - although many are biting the bullet thanks to bank deregulation. However we can't get too caught up in fundamentals as traders or we won't make money or even survive if we get too caught up in the news, financial reports, or the fundamentals. Although it is wise to properly read the financial picture but also understand all the factors in play including artificial manipulation by the government and banks in the form of injections and unconventional monetary policies such as Operation Twist, Quantitative Easing, Bailouts of any nature, fraud, ect.

In fact the market makers use the news and fundamental picture to sway the emotions of competition - which is you if your a trader - in tougher markets this becomes more evident. Sometimes the fundamentals can not be fought but most of the time enough market manipulation will boost almost any market in the short term to medium term. So if your a small trader you will not be able to win that game.

Price action and technical analysis are our only friends in the game.

Dow Jones Industrial DJI30 H1 (1hr chart):

DJI30 Day Chart Part1:

DJI30 Day Chat Part2:

DJI30 Day Chat Part3:


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