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Should you listen to the news, or do your own due diligence.

Should you listen to the news, or do your own due diligence. Martin Budz.

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Should you listen to the news, or do your own due diligence.

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  1. Should you listen to the news, or do your own due diligence. Martin Budz

  2. In this first presentation I am going to write about one particular aspect of being an active trader which is technical analysis. When it comes to trading any kind of securities using technical analysis, there is literally hundreds of them that can help you make profitable trades. Technical analysis is used to try to forecast the direction of prices by studying past market data which primarily is price and volume. Another aspect of trading in conjunction with technical analysis is fundamental analysis. Fundamental analysis involves analyzing financial statements like earnings, cash flows, dividends, new products, management etc. It’s goal is to try to make financial forecast on companies. Part of fundamental analysis involves doing economic analysis. Today’s world is becoming very globalized. United states markets are being greatly influenced by Asian and European economic news and vice versa. But how can you tell if Greece will default within the next year and if it is likely to cause global recession if not depression? Even if Greece would default on its debt, without having any significant economic impact on other countries, can you imagine the panic and turmoil it would create with markets? My answer is I really “I don’t know”. The reason why I say this is because I can turn on the TV today and listen to someone with a PhD in economics who will give his option on possible outcome of Greece defaulting, forecasting the GDP for next year, or even the unemployment rate, still no one will know where the market will be some time from now. What is even worse, is that when the gentleman is done with his forecast and I happened to switch channels from cnbc to msnbc, all of the sudden I hear another economist whose views are completely opposite from the previous one. So do I really want to base my investing or trading decisions solely on news? Definitely not. If you look at my next slide, you can appreciate how profitable investor you would be if you mainly based your decisions on news. Investing in markets is a zero net surplus game. It is not homogenous. What I mean is that for every winner in the market there has to be a looser on the other side of the trade. In markets, It is assumed that most of the time half of investors think markets will go down, and half think they will rise. Please do not get me wrong, I would never advise not to listen to the news for trying to project where the market may be heading. But being a trader involves using technical analysis along with forecasting possible future headwinds or good times to come. Early 2001 dot com bubble collapse and the crash of the housing market leading to financial crisis in 2007 counts for two recessions in eight years. Today, the sovereign debt crisis in Europe potentially endangers the outlook on the economy and the markets globally. Endless stimulus packages, pumping of federal money into the markets and by ECB, potential collapse or Eurozone and its Eurodollar, double recession all create uncertainty and emotional trading. Using technical analysis as a tool can be very profitable in these kind of markets. In the next article I will start with some simple technical analysis involving supply and demand.

  3. Monthly supply from 2000 created by dot com bubble 2007 financial crisis and retest of the supply Lehman Brothers files bankruptcy NY Times 09/14/08 Economists see longest recession since World War Two Reuters 1/10/09 663 thousand jobs lost in March “The New York Times” Bear Market Bottom 2007-09 Bear Market. Historically news always come late to the party. If you trade based on news, most likely you will be chasing trades after they moved some distance or you will be liquidating your holding after substantial drop in price. If you had no slight idea in late 2007 that global economy was going into crisis, just by looking at the supply that was created by the dot com bubble crash in 2000, a smart investor would get out. October 2007 had a spx index high of 1576. Currently spx is at 1414. If market ever pushes another ~10% higher to 1540-1570s, it would be the second retest to the supply(resistance) level created in 2000 and 2007. Second or third retests to supply/demand tend to be weaker. But lets remember we are looking at a monthly supply. I would expect some kind of correction to happen before and if we will have a continuation of the trend.

  4. Time from market bottom to Peak S&P 500 Median = 42 months Currently October 2012, Is the 42nd month of the rally we started in March 2009. This graph shows all the S&P 500 bull markets and their duration since 1880, with a median bull market rally lasting 42 months. November 2012 is the 42nd month of the bull market rally that started in march 2009. Is the bull market rally close to being over?

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