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On the first day of the year, on my flight out here, I was vividly reminded of something I had just read the day before from a certain market analysis firm that shall go unnamed: they declared that the market would lose "10,000 points in the next 3 1/2 years". Even I, Tim Knight, Mr. Short Everything, found the statement ludicrous, but given some of the eye-opening descriptions of Hedgehogs versus Foxes that I wrote about this morning, I was able to understand a bit more clearly what was going on. Wildly dramatic statements get a lot more attention than sober analysis.
If the Dow is going to lose 10,000 points over the next 3 1/2 years, I guess after today it's going to lose 10,300 points. I again say to those of you who embraced last Friday's frenetic selloff as a huge call-buying opportunity two things: (a) congratulations! (b) my mailing address for excess cash is available on this blog.
The last trading day of 2012 and the first trading day of 2013 absolutely crushed volatility:
I'm aware of three types of gaps — usually occurring in a sequence in a
Gap 1 = Breakaway Gap
Gap 2 = Continuation Gap
Gap 3 = Exhaustion Gap
We'll see, in time, if today's
(Wednesday's) gap on the TF is a Continuation Gap. If so, then it has a long way
to, ultimately, run before it hits the third type…essentially another 100
points, or so, to around 950…although, not likely straight up! I would note
that the Breakaway Gap (which began the current uptrend) remains
Since the formation on the 60 min (market hours only) chart
below resembles that of an inverted Head & Shoulders, this target could be
actualized…the timing, however, is unknown.
potentially, simply continue rising along the upper edge of the channel (shown
on the 60 min market hours only chart below) to defy any overbought conditions.
Or, it could zig-zag upwards within the channel to reach 950-970 by the end of
February 2013. That would tie in with the date by which Congress will have to
reach an agreement on the rest of the "Fiscal Cliff" issues, as well as raise
the "Debt Ceiling Limit."
One of life’s greatest guilty pleasures not discussed in polite
company is being proven correct when everyone couldn’t help themselves
to tell you had no clue. Not that they wanted to discuss why you were
wrong, or what was your thesis for being contrarian to everyone at the
time. No, the ones that just want to shout like a 12-year-old across a
schoolyard: “Nah, Nah, you don’t know what you’re talking about!” When
this crowd suddenly falls silent, that’s when it’s most gratifying.
Being an entrepreneur of any stripe will at times leave one with
feelings of isolation. These are the times that try the will and
fortitude on whether to believe the research you’ve done in analysis of
any given endeavor. Or should one just relent to the crowd, and say “I
must be wrong because so many are telling me so.”
During my air travels yesterday (again, I'm on "vacation" through Monday, so my posts are going to be infrequent), I read the popular Nate Silver book The Signal and the Noise (subtitle: "why so many predictions fail – but some don't"). It was a good read, but not nearly as engaging as I was hoping.
One section early in the book that I did find intriguing was the delineation between "foxes" and "hedgehogs". It's quickly evident that Silver has a preference for foxes, which are people that are adaptable, self-critical, tolerant of complexity, cautious, and empirical.
Hedgehogs, on the other hand, are described along these lines:
May view the opinions of "outsiders" skeptically;
Mistakes are blamed on bad luck or an idiosyncratic circumstance;
Expect the world will be found to abide by relatively simple governing relationships once teh signal is identified through the noise (cough cough – 1 through 5, A, B, C – – cough cough);
Rarely hedge their predictions and are reluctant to change them;
Expect that solutions to many problems are manifestations of some grander theory or struggle
I definitely recognized some hedgehoginess on my part, and there's no doubt of some shining, glorious examples of hedgehogs in the world of financial punditry and analysis.
For 2013, I'd like to endeavor to be more of a fox and less of a hedgehog. The road before us isn't as easy to discern as we'd like to think, and while that complexity and unpredictability may be irksome, our being irked isn't going to make the road straighten itself up.
There are some days when the market moves so fast in the morning that some of my charting time seems wasted, and this is one of those mornings. Since I did my SPX charts ES has spiked up very hard, wiping out all of the losses into the close of last week and reaching a high of 1448.25 this morning. ES is now extremely overbought on the 60min RSI and I'm expecting some retracement, as well as a partial fill of the huge opening gap if ES were to hold the current levels at 1440+ into the open: