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Hope Is Your Enemy
By Colin Twiggs
March 14, 11:00 p.m. ET (3:00 p.m. AET)
These extracts from my trading diary are for educational
purposes and should not be interpreted as investment advice. Full terms and
conditions can be found at Terms of Use.
Hope is your biggest enemy in a bear market. When things go bad, it is human
nature to hope that they will improve.
Hope springs eternal in the human breast...
~ Alexander Pope
Traders have to fight against this natural instinct. Instead, in a bear
market, they need to fear that conditions will deteriorate.
This week's bull trap on the Dow is a typical example. The market reversed
above the former support level of 12000 on news that the Fed would inject $200
billion of additional liquidity into the market. A further intra-day rally was
sparked by S&P, who had failed to anticipate the sub-prime crisis,
announcing that the worst is now over. Strong volume shows that market
heavyweights took the opportunity to reduce their exposure, selling into the
rally. Friday saw the trap snap shut, after the Fed stepped in to save Bear
Stearns from a classic run on the investment bank (Globe & Mail).
A long
candlestick tail on Friday signals
the presence of buyers, but they are likely to be over-whelmed by further
selling. Short-term support (at the January intra-day low of 11650) is not
expected to hold.
![Dow Jones Industrial Average short-term chart]( "Dow Jones Industrial Average short-term chart")
Long Term: The Dow retreated below support at 12000, signaling the
start of another downward leg in the bear market. The medium-term target is
12000-(12800-12000)=11200. Twiggs Money Flow warns that
short-term accumulation has ended while long-term selling pressure continues.
There is one side to the stock market; and it is not the bull
side or bear side, but the right side.
~ Jesse Livermore in Edwin
Lefevre's Reminiscences of a Stock Operator
To understand my approach, please read Technical Analysis &
Predictions in About The Trading Diary.