redbacka report.week ended 26/2/10, page-5

Hi Paul,

Yes - I've been intrigued by the possibility that a break of 4500 could be a contrarian signal to go long.

That's one of the wonderful things about trading - the chess game that it implies.

I remember so well, the much watched Head'n'Shoulders Reversal on the SPX back in May/June/July 2009. The pattern completed and then it headed north again. All the technical analyst shorters were caught and had to buy back in.

So - is it different this time?

Perhaps. Back then, the market was still above the 150-Day SMA and the Daily MACD was above Zero - so a down move was likely to be caught in a reversal upwards.

Now, our market is tagging the 150-Day MA from below. The 13-Day MA has broken below the 150-Day MA. The Daily MACD is below Zero. So the odds now favour a completion of the movement, if it occurs, below 4500.

So all those who are being contrarian - just might be in the majority - so - the majority will get caught.

Ain't chess fascinating.

Capablanca (a famous world champion chess player) once said that all that matters in chess is the next move - so long as it is a good one.

I think that is the same in the stock market.

Whatever happens - good luck.

Cheers
Red