Do not be fooled by today’s rally

In newspapers or in the internet articles you can read [tag]market[/tag] commentaries which may sometimes look very optimistic and another day very pessimistic. Usually these commentaries are dedicated to that particular [tag]trading[/tag] day. For example when you look at Market Dispatches 12/2/2008 you may get fooled that the market has finally recovered and is in a rally. The post reads:

[tag]Dow up 270[/tag] despite darkening auto picture

The [tag]rally[/tag] comes as financial stocks and General Electric move higher. GM says it needs $4 billion to get through 2008; its November sales fell 41% from a year ago. November sales for Ford, Toyota and Honda fell at least 30%.

[tag]Dow[/tag]
+270.00 +3.31% 8,419.09
[tag]Nasdaq[/tag]
+51.73 +3.70% 1,449.80
[tag]S&P[/tag]
+32.60 +3.99% 848.81

Even the results of today’s trading were impressive, these results are based on weak data and rumors. It is frustrating watching the market and [tag]stocks[/tag] everyday, but it is very important to stay out of these daily up and down moves and watch the market as a whole picture. When we take a look at the [tag]intraday trend[/tag] the picture looks completely different:

Dow Jones Intraday chart

As you can see, the market was choppy and most likely driven by rumors. Such a rally is weak and unsustainable. When looking at daily chart, the result is even more mediocre:

Dow Jones Daily chart

The trend goes nowhere with a high probability of further drop. When watching all euphoric data about rallying as well as declining market, always take a look at the whole picture.

Tip: This market is not the one you want to be [tag]invest[/tag]ed in, unless you can use a day-trading technique. The market is usually very volatile during the side-way period and most stocks tend to follow it. There is still nothing to do than waiting. Use this time for studying the market and stocks, save money, do not open any new positions, create [tag]emergency account[/tag] if you still do not have it, build a [tag]watch list[/tag] and wait for the market to tell you when it is the best time to start [tag]buying stocks[/tag] again.


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One response to “Do not be fooled by today’s rally”

  1. Crisis Cartoon says:

    You can say that again… and I would add “Don’t be fooled by any rally in a day.”

    Don’t worry too much about the day rally or falls because it is just Mr Market pricing the emotional part of human into it.

    Look not at the price of the stock, but at the business the stock is holding :)

    Ren

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