Quote from NoDoji:
I agree it's much harder over the past couple months than earlier in the year when the market behaved more "rationally". There was true fear that the great depression II was upon us and the market moved down until the banks finally came out and said they'd be posting profits instead of more write-downs.
At that point everything was so oversold and the relief so palpable that the rally off lows was sparked, so buy every dip was the rule of thumb.
We're now at a point that fundamentally a huge V-shaped recovery is priced into most stocks. Oddly, we now rally on bad news, drop on better-than-expected news, and have companies with very poor earnings and growth prospects getting pulled upward with an unstoppably rising tide.
I'm reading Al Brooks' book and he addresses the question that I'm sure every one of us has asked at some point: "Who buys that last tick before the trend reverses?" Who's buying that high after a run that seems it can't possibly go any higher? Or who's selling that low that seems to be far beyond overdone?
To address black boxes, he informs us that the big players' automated systems have algorithms programmed in that just keep buying in an uptrend or selling in a downtrend until the trend is clearly broken. They will automatically buy into that very last tick before the reversal, because their systems have proven that overall this is how the profits are made.
We as day traders or short term traders now more than ever have to simply follow the price action and really ignore the news and fundamentals altogether.
With a weak dollar and fear clearly washed out of the market, the path of least resistance is still up.
