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business newsThe Risk Trade Is Back On
The latest shift in investor psychology is almost perplexing. Yet, two things are certain: The risk trade is back on, and there's been a return to less volatile daily action in the tape.
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Trust nothing, question everything and quietly enjoy the ride. We at my firm are not sure who originally penned this quote but, it sure is fitting for 2012 thus far. With little changed on a global economic standpoint from the highly volatile latter half of 2011, the latest shift in investor psychology is almost perplexing. Yet, two things are certain: the risk trade is back on and there’s been a return to the ‘atypical’ (not so volatile) daily action in the tape.
A week ago we discussed the possibility of the SPX breaking 1,300, and in doing so, it would substantially increase the probability, at minimum, of a retest of the topside of the ‘2011 Channel of Indecision.’ However exciting this may seem considering the break occurred, there is something more substantial to contemplate – the NDX’s current position. Of all the four sisters, this non-financial, technology-laden index closed the week above an 11-year high. Impressive? This Index, since mid-December 2011, has been on a tear. It has shot past two short-term resistance levels and is currently heading for its final – which is slightly upward-sloping.
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And yet there’s more. On October 18, 2010 (yeah, that’s correct – two years, three months and three days ago), we penned a piece discussing the NDX and a MASSIVE Head & Shoulders formation on a weekly basis. This formation is the largest – in percentage – we’ve ever found (~100% from peak to troth). Looking at the longer-term (weekly) chart you can plainly see the formation. The question on the table right now is: “Was the latest break of trend nothing more than a longer-term retest?”
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We believe this is too early to determine the answer but, as we initially said, enjoy the ride while you can but don’t trust anything; at least until there is further confirmation. With the other three sisters still trading below resistance and the NDX coming upon a trend convergence around 2,500, we would employ caution and remember the comments from our first piece of the year: First-out-of-the-gate moves.
We hope this helps.
Editor's Note: Read more at Tuttle Asset Management.
Twitter: @TAM_News
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