Bull and Bear Traps Aren't Just Coincidences
They're Wall Street's way of accumulating, distributing, and clearing the decks before the ship sails.
When you're strange faces come out of the rain.
People are strange when you're a stranger…
Streets are uneven when you're down.
-People Are Strange (The Doors)
"There are things known and there are things unknown, and in between are the doors of perception."
"To be mindful is a discontinuous process, our senses allow us a glimpse at the perfect form (truth) but that view can often be distorted by the flickering fire of perception that illuminates the shapes we perceive to believe."
We trade what we think is the truth based on the time frame under scrutiny. Time bends the truth. Are we trading "the truth" or trading to make money? Opinion tweaks truth -- often monstrously. If we don't trade "the truth" and we make money, should it be considered dirty money? By that I mean, will winning with the wrong approach or strategy come back to haunt you, causing bad habits?
Not if you use discipline. Translation: You can do anything as long as you're disciplined enough to know where you're wrong. Discipline doesn't just equal a stop; it means exiting if the reason that got you in appears to be a shadow and not substance. You don't have to wait around for a price stop to get hit; you can employ a time stop.
Every good move in the market (either up or down)seems to start with a trap or a hook -- on all time frames. Such was the case in the secular bear market from 1929 to 1949. Note the little Pinocchio below the bottom of the big triangle in 1949 before a legitimate leg to new highs began. Why do I say legitimate? Because that was the low prior to the advance that led to a new record high over the 1929 high. That was soon after the government stopped crowding out the private sector, by the way. Can Washington see the drawings on the cave walls? If they can afford a ladder to climb in order to peer over the mountains of money and bills they're printing, I suppose the answer is perhaps. Think, kill bills.
Although, 1942 was a good low that many count as the end of the bear, the new secular bull didn't start until June 1949. Note that the market responded to that 60-year cycle with momentous momentum at/near the end of June this year -- running up in what I think will be looked back on as a 90- to 100-day advance along the lines of the 1987 90- to 100-day romp; the March to June 90- to 100-day fire drill in 2007; and the 90- to 100-day blow-off into September 1929 shown in this space recently.
That doesn't imply a crash right here, right now. A sharp downdraft likely, but a crash -- if it's to occur, which I think is possible -- is probably relegated to 2010 or 2011, or both.
Let's take a look at the secular bear market from 1968 to 1982. Note the false breakout into January 1973. Interesting how this is seven years after a market peak in 1966, which is reminiscent of the overthrow in 2007 of the 2000 top. Note the steep intervening plunge into 1970. Note the false breakout over a trendline in 1981. Note the false breakdown below a trendline in 1982.
Importantly, the mother of all bull markets started with a huge Double Triangle Pendulum. The market broke out of a huge triangle to the upside first with the expectation that a typical Triangle Pendulum Signal would have elicited follow-through on the break to the downside in 1982. However the third move back to the upside was the legitimate directional bias. You could say the mother of all bull markets, or MOAB, started with the mother of all cha chas! This is a pattern worth filing on the cave walls in the back of your mind.
As I pointed out above, major moves on whatever time frame seem to erupt from traps that catch players wrong-footed -- a breakout puts many traders in the mode of buying all pullbacks, thinking the former thrust will be revisited; a breakdown puts many market participants in the mode of selling all rallies, thinking the former weakness will be revisited.
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