update

Hi Guys

Given todays events, I would like to point out the following as I think it is very important whether you are a trader, investor or both. This is a technical trading situation and not a fundamental one - we need to understand this!

1. Todays move is an orchestrated opportunistic market move by a very small number of traders who have sent the wheels spinning for investors and traders. Why do I say that?

A. The number of shorters on SDL has increased to 10% of trades in the last few trading days.
B. Technically, we finished the week on a "shooting star" candlestick - a very common reversal pattern. I suspect the shorters have been setting this up for a few days, given the candle formations - common distribution patterns. We also had a number of TA abberations, MACD, moving average etc... when these line up, opportunities do also.
C. Shorters drive the profit takers who drive the stop losses and then pressure is applied. Happens quick, that is why ot works for these guys as by the time you realise what is going on you are stopped out.
D. TA has indicated a threatening situation re the DOW and All Ords. I think this is overdone - firstly, the DOW was recovering nicely throughout yesterdays session. I suspect strongly, supported by futures, that the DOW will be up tonight. Why is this important? If we reverse (all ords) now, we are likely to move strongly towards 5000.
E. SDL technicals - while it looks bad today, is actually within first level retracement bands and above the "channel shift" described in an earlier post. .54 is about right for the retrace (we should't use .145 for the start point, but the latest "wave" run.
F. Why did this happen? It is just an ideal set up for profit taking and shorting.

Can this be good?

Yes, definitely. There is no way a stock can continue moving up without retracements and washing out the old and replacing with the new. If you subscribe to wave theory, then we are completing a correction now - and because that takes "time", it shifts the next leg up into new territory which I think will be around .78. (without breaking overbought indicators)

Another way to look at this is that the short term is often controlled/manipulated by traders/profit takers but the mid to long term by the investors. The two interplay - that is the nature of the markets!

Another way to think of "how low will it go?" is that the sellers are MOST likely to be:

1. Profit takers - they will want to reenter at some point because they actually like the stock but want to make a few dollars on the way.
2. Shorters. At some point, they will need to close positions. They will do this at retracement points based on weekly/daily charts.
3. Accumulators. Take another opportunity to get set for impending announcements.

These times ALWAYS come with any stock and tests our resolve. There is no question in my mind that todays action is opportunistic and will shake the tree - as it has already. Never pleasant to leave profit on the table - but more unpleasant to sell and then see us run, which we undoubtedly will.

Take care that you consider the "play" that is taking place before getting emotionally driven. The worst is over by my TA. (Maybe some small downside but equal chance of run up given shorters profitability. I will post a chart when I get a chance to illustrate how this retracement set up might play out. Remember that there isn't a lot of "time" for the price action to gyrate before a reval - so expect volatility.