I started out in this business as a trader, and one of the first rules they teach you is "the Trend is your friend."
I was a decent trader, but always curious as to why this or that was happening. When the opportunity arose to explore these issues on the research side (many years ago), I jumped on it.
One of the more difficult aspects of transitioning from gunner to macro strategist is reconciling the short term technical aspects of the market (1-3-6 months) with the longer term macro environment. Since July, we have seen a decaying macro picture concurrent with a strong market trend. If you follow both, it can make you schizoid.
As a Trader, you don’t care about the macro — your timescale and benchmarks are much shorter. If you are an Economist or Equity Strategist, you are not supposed to care about the shorter term trend.
I try to use both disciplines. If I ignored the trend, then based on the macro picture, I would be totally short — and getting killed. If I ignored the decaying macro, then I would be leveraged totally long — and likely to get slaughtered sometime in the future.
Which leads us to today’s
Word chart: The SPX and the Dow remain firmly in their trend channels, in place since July. Nasdaq, on the other hand, has broken its trend. That implies increasing potential near term for downside in the NDX.
Note also that yesterday was the last day for Mutual funds to make purchases that will show up on their books for 2006 (T+3). Wednesdays trades will clear by Friday; Anything bought today or tomorrow will not clear until 2007.
SPX & Nasdaq, Equivolume Chart, 6 Months
chart courtesy of Dick Arms
Note: Expect the markets to be closed — either a whole or half day — for President Ford’s funeral service likely to be Tuesday.
Uptrend Hangs by a Thread
RealMoney.com, 12/27/2006 9:09 AM EST