The Deipnosophist

Where the science of investing becomes an art of living

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Location: Summerlin, Nevada, United States

A private investor for 20+ years, I manage private portfolios and write about investing. You can read my market musings on three different sites: 1) The Deipnosophist, dedicated to teaching the market's processes and mechanics; 2) Investment Poetry, a subscription site dedicated to real time investment recommendations; and 3) Seeking Alpha, a combination of the other two sites with a mix of reprints from this site and all-original content. See you here, there, or the other site!

01 June 2006

Off the charts

Reader, Greg Reiman and I enjoy an interesting discussion here. But I was AWOL yesterday, as I felt horrible all day. And that was before visiting my Dr. for my regular quarterly visit, at which moment he decided to share some startling news re my 'charts'. Oh well; life continues. (I hope :-)

Now I attempt to parse this interesting follow-on comment from Greg. And as I wondered at my ability to be as pithy as is he, I move this part of the conversation here, where there are no software-imposed limits on my logorrhea.
I hope you are wrong about the resumption of the bearish trend. I do not have your unique technical analysis & pattern recognition skills, so I will have to wait for the market tell me it's intentions. Fortunately, as you said, the market does not move in a straight line, it tests support and resistence along the way, providing opportunities to trade, although most of us still do better in an uptrend.

I need to correct my earlier statement; BHP, CCJ & RTP actually corrected significantly more then the market indexes, 20% to the indexes 10% in round numbers. Their first dip seems to have found support and rebounded 7-10%. In hindsight, this first dip found support at a predictable level and buying at that support level would have been a good short term trade (IMHO). We shall see what the next dip has to offer.

I do not see the signals you see regarding the direction of the resources group. But I would be interested to know what you are looking at and how you interpret those indicators. Regarding the new possible leaders, I am at a total loss, but I am certainly interested in your thoughts.
I appreciate your compliment, but especially your hard-won wisdom on display in your first paragraph. I would offer the following addendums:
1) I too hope I am wrong re the resumption of the bearish trend. But recall my "shatter your assumptions" comments made 6+ years ago: what I suggested then was to lose the mind-set of a trending (up) market and the consequent "each dip is a buy". And that the market averages likely were moving into a sideways trend that could endure for years, even decades. If I am correct, then the recent attempt at the old highs should be rebuffed (as it obviously has), and at some point revisit the lows. It need not decline that low on this swing, but it could. Whether or not it does, all the price action between the circumscribed high and low could be... messy. This type of action denotes a trading range, or base. The sole question is the amount of time this action might endure. Certainly the fundamentals stack up against the market averages to break out into new highs -- and trend higher from that point. Nonetheless, there are always winning sectors and groups (and, of course, stocks) during this assumed base-building period. Investors have a choice: time the market's or stock's price swings (especially beneficial during a sideways-trending market) or find trending sectors and groups and purchase (and hang on) to the leading stocks in each for the trending action. That will occur despite the markets many frightful declines (yet to come).
2) I perceive market action differently from most market participants, as you note. To wit, I seek resistance during an up trend (and assume support as axiomatic), whereas I seek support during a downtrend (and assume resistance as axiomatic). This perception is perhaps counter-intuitive, but consider that trends -- up or down -- frequently are rebuffed against their primary trend. Thus, within primary movements, I seek short and intermediate term inflection points as natural points of temporary reversals.
3) Yes, we do better in an uptrend, if we invest primarily on the long side. Vice-versa is obviously true, as well. How many investors do you know, however, who want to 'predict' market action, especially against the prevailing trend, as a means to impress us all with their self-bellowing intelligence?

This blog is my record of sharing what I see, as I see it, and in real time. It always helps me to receive questions, as I often forget or neglect items I should or meant to include. It also is difficult to be as fully revelatory as possible while keeping in mind each reader's experience and knowledge. How much do I share without confusing readers? Too, I must rid each post of jargon and other items that could confuse, including my beloved metaphors. I find those items merely confuse readers rather than help. So in the attempt at writing for all, I still leave behind many readers.

Your comments and questions are welcomed, as always!
-- David M Gordon / The Deipnosophist

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