If you have had faith in the market since the bust of 2007-2009 you have made a mint.
When you have been reward by such courageous bravery it is hard to turn your back on the strategy of being long against the odds.
By their nature investors are optimists. They risk their hard won money on the dreams and schemes of others, with effectively no control on the outcome. You have to have positive mental attitude to invest and to invest after a crash you have to take that to the max.
As such investors will be euphoric right now. The market is strong. Only days ago the Twitter IPO exploded on to the market like it was 1999 all over again.
“What me worry?”
Well here is a chart to make you worry.
Ignore the annotations for now.
Ever the most novice technical analysis tyro can predict what happens next.
It’s a long way down.
Dow under 10,000?
A break out is a 1 in 5 chance according to historic statistic and the upside is perhaps 1000 to 2500 points. An 80% chance of a 5000 point fall against a 20% chance of a 2500 per cent fall. That’s a 3500 point loss expectation. Ouch.
So what to do?
This is the key.
Above the precipice is this channel. It’s a ledge the market is tottering on.
If it breaks up that’s fine and dandy, if it breaks down that’s pretty ugly.
Here it is close up. It looks like a swing traders delight, which is rather unsettling.
However I see this chart not as a predictor of direction but a statement of equilibrium and volatility. The market is fine in the band, then if it leaves it one direction or another it will be a strong confirmation of a major move on a new trend.
I personally think we are at the start of something big on the upside, for years to come, but the chart says this is a major way point for better or worse, so I’m not letting this rampant bull market convince me there are nothing but blue skies ahead.
As such this is the channel I’m going to be watching like a hawk.
Boom, bubble and bust is an inescapable cycle and I think we are in for a boom.
But there is no market top when you are likely to feel otherwise, so at the first sign of investment euphoria you need to start looking for the downside and mapping out your stops.