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Continued from 1.
In my experience with parabolic chart patterns (mostly in commodity charts,
non-US equity markets and a few US equities) - once the ascent is broken, it
stays broken until all of the ascent is retraced.
In short, this corroborates Earl's excellent analysis/prognosis for the US
markets.
I "made my bones" trading the Bombay Sensitive Index component shares in
1990-94, so those experiences are burnt into my memory. That experience has
basically taught me to identify a "bubble" and not get too carried away by
the breathtaking opportunity when the expansion is in my favor, and not get
too complacent about buying too soon if a 3-4 day pullback to a moving
average is something more than a consolidation.
Jeff Hartream, fellow listmember, had some excellent posts to the list
during the Asian crisis of 1997. Maybe he will read this and share his
experiences trading those markets as he did, during the breakdown of the
Asia ex-HKSE parabolas.
>From my perch, if Naz is/was a parabola, we ain't seen nuthin' yet in terms
of the decline.
If the Nasdaq is deemed parabolic, then mid 2000's is first stop for this
carnage. Anticipating a turn sooner than those levels is playing with fire
when it has already become extremely hot in the kitchen.
Anecdotal reasons:
1/ The street is still not afraid. No bids were being hit Friday, until the
very last minute.
2/ The put call ratio - though it did record an uptick - is hardly a proven
measure - it is more blunt in its "edge" than sharp. Last year we had these
sort of readings some 10 times before the real bottom.
3/ The street is long and remains long. Lugging inventory into a hostile fed
and a falling market is not good news. It is also entirely likely that on
Friday the street refused to go home long inventory and thus the normal
stability function brought about by the astute specialist was absent.
4/ There still seems to be some complacency that in after-market news
coverage "the Dow is down only 12% from its high, and the Naz is a wild
beast so 25% down in a week is not a big deal". Already, CNBC is pushing
reference points back to last year "but from its lows of October last year
the Nasdaq is stil up xyz% and it is up abc% for the last 12 months".
5/ While chatter has quieted up on the lists appreciably, the retail
investors with appreciable size accounts I have spoken to over the weekend
are
a/ scared, but not shaken
b/ not selling, and contemplating buying on Monday/Tuesday
c/ looking forward to be able to "get out whole" - or to "make a fast 20-25%
and never trade stocks again".
Seems awfully like "no big deal" to me. The same no big deal line adopted
during the early days of the Asian crisis' reporting adopted locally in
those countries and here.
It is the same "no big deal" attitude that prevailed in the Bombay markets
back in the early 1990s.
Representative charts for the Bombay experience attached.
As this set of emails progresses, I will try to make the case that this is
what I see (a bubble bursting) and therefore continued downside risk.
You, the reader, are welcome to open my eyes with a contrary opinion - even
though I say in my first email that last week was extraneous.
Gitanshu
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