Bill Cara: Avoiding whip-saws, Fri., Oct. 28, 2005, 2:12 PM

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October 28, 2005

Avoiding whip-saws, Fri., Oct. 28, 2005, 2:12 PM

Traders who follow a single indicator will be often wrong. The reason is that indicators get to be well known and hence can be traded against. If the Street knows you are going to make a certain move, they'll play into that, and trade against you. They count on you getting discouraged so that you fall back into the habit of relying on them to manage or direct your assets.

Here is the evidence. The minute I show A, the Street does B.

It's all a dance.

But the Street is just finding out that in my corner is Lee Ann. :-)

Posted by Posted by Bill Cara on October 28, 2005 02:13:09 PM | Category: Trader Tools

Discourse

An important divergence is continuing between the bond market and the stock market. Equities may be bought hand over fist this afternoon, but bonds are being SOLD and swiftly. As yields continue to rise I see that as being the most important and significant indicator to watch.

I also am watching the XLF with quite a bit of interest. There is another significant divergence occurring between the Banking Index and the Housing Index. As interest rates rise the housing stock are being sold off, but at the same time the Banking sector is probably the strongest in the market currently. I see the housing sector as maybe being a leading indicator - because a lot of the credit which has been extended over the past 3 years has been tied to potentially shaky collateral (re: property.)

It will be important to watch XLF as if it breaks through the longer term resistance around $30.80 sometime over the next week and drives higher it could be the short of a lifetime when investors/traders make this important connection.

Or maybe I am just wrong. :)

-Ben Green

Posted by: Soulek1 at October 28, 2005 2:38 PM [link]

Up, down, up, down, up, down. I feel like I'm back in Catholic church again!

This is one volatile market. Ben, I like your analysis. The banking sector is strong but is it just a major head fake?

Posted by: MarkM at October 28, 2005 2:41 PM [link]

How about this, intra-day trend reversals are rare. Best to look at the market mid-day and expect the trend in place since the open to continue for that day..

Posted by: davep at October 28, 2005 3:04 PM [link]

Hi Bill, Regarding Avoiding The Whip-Saw, this seems like a very important concept but I don't understand the implications of the chart. I see the disconnect in the slope of the share prices and the RSI from (say) 12 to 2, but I don't understand what it means.

I would appreciate it if you could elaborate.

Thanks for all you hard work.

David

Posted by: davidtr4 at October 28, 2005 8:42 PM [link]