I was paying attention to the resistance marks in your [Thursday] reports so was aware of watching out (Thank You). But looking at market action [Thursday], I was seeing strong volume breakouts, up volume trouncing down volume, advancers beating decliners. All kinds of buy signals. So I was still somewhat surprised to see the big selloff on no news to speak of. Almost like there was program trading set to sell at certain markers. Kind of gives one the impression this market is rigged. Institutions buy big initially to run prices up and then sell it off. Still sounds like profit taking to me. Maybe it wasn't modest, low volume profit taking but still profit taking. (November 11, 2001)
Your comment on selling at 'certain markers' is more on the mark than you might think. Institutions and investors are creatures of habit beliefs, and those habits and beliefs cause them to act certain ways at certain times. As we have said before, understanding market psychology is a major key to success. That means knowing what levels institutions use as buy and sell signals. Trendlines, moving averages, price consolidations and the like all represent points where investors have bought or sold in the past and will be inclined to do so in the future. It is something of a snowball effect as we have noted before: once a price level is a selling point, it tends to remain that way until enough buyers decide otherwise. Trendlines and channels (the upper trendline connecting the majority of peaks on a move up) tend to be very accurate predictors of pullbacks and bounces during solid uptrends and downtrends. Thursday and Friday the Nasdaq tapped close the upper channel on the highs and then peeled back. It is now trying to hold near term support at March and August intermediate lows above the up trendline. That is not super solid; the up trendline is better support. Either one could trip the buy or sell signal for the institutions. Thus far the trendline has been the buy signal; trends tend to stay in place until they meet a stronger trend or something changes the outlook.
It seems uncanny at times how a stock or index all of the sudden stop its climb or its fall; when it does so on increasing volume, institutions are at work. Understanding that can happen and at what points institutions may be inclined to do so is so important. We think it is so important three of our seminars are devoted to understanding trendlines, moving averages, other support and resistance, volume, etc. You have to be ready as this subscriber was based on our bird dogging resistance levels. As we often say, understanding how to make money in the market is not overly difficult, it just requires you to think a bit differently. What that usually means is understanding where the big money is going to buy and sell. That gives you one of the edges you need.
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