Yep, the markets are overheated and no, today's near triple point dip by the markets was not triggered by Greece and its riots as reported by most news agencies.
Sure, there is a correlation but to suggest a cause-and-effect is ludicrous and irresponsible by those who report on the financial markets. For the most part, ignore the news with respect to its hubris ability to theorize associations between one variable or two and movements in the market. I suspect they are wrong more than 50 percent of the time.
Today's dip was caused by one thing and one thing only: a tipping point.
Malcolm Gladwell wrote a great book called The Tipping Point where small changes add up to make a big difference and reach the moment of critical mass - the boiling point. And, in the world of investing and trading, where 95% of all trades are now executed using technical indicators, the RSI or Relative Strength Index is the measure by which most, that is traders, determine the boiling point. There are three other technical indicators: MACD, Stochastics, and moving averages that are also watched closely to confirm or refute RSI. Overall, these four are responsible for most of the entry and exit positions that occur in the markets and you should follow them very closely.
If you superimpose the RSI on prices, you will find a stunning correlation between prices rising and falling and RSI rising and falling, particularly when the RSI reaches extreme levels, say below 20 or above 80. If you don't know what RSI is then read an excellent explanation here by StockCharts.com.
But why does following technical indicators rather than news agencies or fundamental data make better sense? Because its easy, non-bias, quantitative, observable and replicable.
While news reporting and fundamental data are important and should not be avoided altogether, understanding Relative Strength Index will raise your game and your profits. And, while it does not work 100% of the time, it probably outperforms other variables such as economic indicators, PE ratios, and disruptions in supply and demand in determining entry and exit positions.
Here is a picture of Apple's chart (click photo to enlarge or share) showing several technical indicators (MACD, RSI, Stochastic), fundamental ratios, and current sentiment for July options and insider trades. Because the RSI is at the extreme level, 85.45, I suspect that Apple will pullback next week. The only caveat for a false signal: some traders at the large investment firms, such as JP Morgan and Goldman Sachs, went into their software and changed the parameters to avoid triggering automated market selling for Apple shares which would prolong Apple's current trend in its price rising.
Good luck traders and investors.
Sure, there is a correlation but to suggest a cause-and-effect is ludicrous and irresponsible by those who report on the financial markets. For the most part, ignore the news with respect to its hubris ability to theorize associations between one variable or two and movements in the market. I suspect they are wrong more than 50 percent of the time.
Today's dip was caused by one thing and one thing only: a tipping point.
Malcolm Gladwell wrote a great book called The Tipping Point where small changes add up to make a big difference and reach the moment of critical mass - the boiling point. And, in the world of investing and trading, where 95% of all trades are now executed using technical indicators, the RSI or Relative Strength Index is the measure by which most, that is traders, determine the boiling point. There are three other technical indicators: MACD, Stochastics, and moving averages that are also watched closely to confirm or refute RSI. Overall, these four are responsible for most of the entry and exit positions that occur in the markets and you should follow them very closely.
If you superimpose the RSI on prices, you will find a stunning correlation between prices rising and falling and RSI rising and falling, particularly when the RSI reaches extreme levels, say below 20 or above 80. If you don't know what RSI is then read an excellent explanation here by StockCharts.com.
But why does following technical indicators rather than news agencies or fundamental data make better sense? Because its easy, non-bias, quantitative, observable and replicable.
While news reporting and fundamental data are important and should not be avoided altogether, understanding Relative Strength Index will raise your game and your profits. And, while it does not work 100% of the time, it probably outperforms other variables such as economic indicators, PE ratios, and disruptions in supply and demand in determining entry and exit positions.
Here is a picture of Apple's chart (click photo to enlarge or share) showing several technical indicators (MACD, RSI, Stochastic), fundamental ratios, and current sentiment for July options and insider trades. Because the RSI is at the extreme level, 85.45, I suspect that Apple will pullback next week. The only caveat for a false signal: some traders at the large investment firms, such as JP Morgan and Goldman Sachs, went into their software and changed the parameters to avoid triggering automated market selling for Apple shares which would prolong Apple's current trend in its price rising.
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| click on photo to enlarge or share |
Good luck traders and investors.
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