Posted 15 November 2009 - 10:21 PM
I trade what I see and keep it simple, i.e. important MAs, breadth, tick, trin essentially. RSI can help, but it can also fool. But, at the risk of putting my big foot in my even bigger mouth, here goes:
A year ago we were on the cusp of an enormous collapse. We are in the early days of a new world/economy. I doubt any of us know where this is all heading. "Globalizaion" like in the late 80s (collapse of the Berlin Wall, rise of China/India) etc. is not evident right now. Technology (the computing and Internet age) are not apparent. Etc. What will take us into a fresh era of growth? I have no idea and see no one speaking logically in the few business mags and journals I peruse.
Meanwhile, momentum is a powerful thing. There is still tremendous momentum from the bull market of the 1990s and mid 2000s. Most of us have no idea if or how the world is changing aroud us, but it probably is. Meanwhile, the capital markets have been handed a ton of cash in order to stabilize, so you can't be too surprised by the upward market trend.
The AD "failure" might be due to the fact that institutions have 2 options: sell stocks to post/take gains or hedge and sell some stuff. If we were in a "normal" situation, AD would be declining and prices would come tumbling soon after. But we may not be in a "normal" situation. Hence the "high level consolidation. From here I would not be surprised to see the market soar even higher for awhile.
IF (big if) economic recovery occurs, and IF some new paradigm arises, the party might continue. But if we are only in a liquidity driven reflation with nothing down the road to catch the spark, this will ultimately end unpleasantly.
PLEASE understand I have no idea what I'm talking about, FWIW.
Here's something that might be helpful. How about a look at the AD lines in recovering markets, like the late 1970s, or the late 1930s? That could be interesting....
mm