Some of my readers will recognize my previous work from the Reversion to the Unified Mean (RUM) Wave blog. I wrote it in relative anonymity for a couple years. That work can now be found here.
Here is the translation from Fed speak to Fighter Pilot speak: buy whatever stocks or commodities you want, we are here to make sure the stock market goes higher... forever.
I'll be the first to admit that I was wrong about the QE3 announcement. I didn't think it would happen, but it did and I got hammered, as did my friends that trade with me. I'm not happy about that for obvious reasons, but I didn't sell out of my short position today. The reason is the calculated score chart below:
We were already in overbought territory before the announcement, and now we are in nose-bleed territory. The overall daily score has topped out around 900 on previous waves. Today's rally drove the score to 1028! This will be a great test of this measurement tool. If the scoring system turns out to be correct, it will have proven itself against dramatic Fed action. I'm looking forward to observing how it turns out!
Here are a couple thoughts going through my cranium for most of the day today:
1) Don't fight the fed
2) Never buy at a 52 week high (there were a lot of those today all over the market)
3) Big movements away from moving averages lead to big moves back toward them
I plan to operate within these guidelines for the rest of the year. I suspect the market will exhaust the Fed sugar high shortly. That is when I'll get out of my short positions.. I may still take a loss, but it won't be as big as if I jump ship now.
GOOD LUCK TOMORROW!