If you had looked at last week stats you would have noticed that the new highs dropped significantly, however the new lows never rose significantly at all. This week the number of new highs seems to have risen rather fast. Even though volume is not that great on up days, the number of new highs seems to be telling another story. We think the low volume is indicating extreme uncertainty; rather than indicating an imminent correction, but as we all know things in the market have a nasty habit of changing rather suddenly.

Like the VIX and Put call ratio, Volume and Price action seem to be losing their value as I think it is being to widely followed. This is short term because the masses usually give up sooner than later when an indicator stops functioning the way it should. Unless we see a serious spike in the number of new lows, I think we are just going to be entering a period of extreme volatility, with the path of least resistance still being up rather then down.

Remember this is the last stage of this run up and as such it is not the point where one should be loading up to the max as the volatility could drive you completely insane.

The month of March is going to be very interesting, either we put in a bottom now and take of to challenge the 11000 area or we have a pretty hard correction which will be mistaken for the big crash and will result in many a bear losing their mind when the market rallies back with fury.

If we do get that correction it might be worth looking into buying a whole bunch of calls in select indices

www.lowrisk.com

Here we have an interesting set of numbers, based on perceptions the number of bulls have sky rocketed, perhaps this explains the huge volatility we are seeing. Since the number of true bulls are getting nervous because they think the others that are bullish to have positions. Little do they know that most of the so-called new bulls are full of nothing but BS. They are all talk and no action. And we all know talk is cheap. The opposite is true for the bears, in the perception arena there are very few bears but in reality the number of bears has surged. So using these two different pieces of data we get a very interesting picture.

Individuals who perceive the situation to be bullish have risen in number seriously but when one takes a closer look, we find out that they are nothing but empty tin cans. We all know that an empty can makes a very loud noise. The bears appears to be hibernation but when looks closer we see that they are very busy and getting ready to donate their last reserves of blood.

The market is a very strange place and trying to connect the dots does not always give one the right picture, but if you never try you will never find a solution.

There is one pretty safe Long-Term solution and that is to buy Gold, Silver and now Palladium on every major pull back you can. I think Silver will do the best in the long run.

It is no coincidence that many use candlestick charting and that this relates to the ancient art of Samurai fighting. Take a look at the movement of the QQQ after hours today March 10th). That is an example of what is called a "night attack." Every hour of every day the markets around the world are moving. Money never sleeps. It is the closest thing to endless battle that exists in our lives. It is a question of your taking their money before they take yours--plain and simple. That is why we have battle plans, including attack and retreat strategies. Everything in the markets is about perception; but more importantly, it is about winning and losing. There is no middle ground. It's war and if you want to play you must not only perceive, but actualize that these are war games.

We all have a natural tendency to be bullish or bearish, optimist or pessimist, introvert or extrovert and we all come in all shades and combinations. So the bullish optimistic extrovert ends up being hard out long, and the bearish pessimistic introvert is wrapped up short. I was from the latter camp, I knew I was doing something wrong but could not put my finger on it; it was when I entered the precious metals camp that it dawned on me what was happening. I was reading the technical analysis in line with my thought processes. I was looking for only one set of parameters. It was when someone told me to turn the chart upside down and see if the opposite is true that the penny dropped. I needed to change my mindset.

Just look at the Dow for a day, from open to close it may move 10 points, but during the course of the day it may move 200 points. So that's 95 points bullish and 95 points bearish. Someone will get killed by their bias if they are only looking for the long or the short. It gets even worse if you look at options, only the unbiased trader wins.

The market seems to be designed to remove us from our sanity, it does what it will do without our help. Because we are made to be unsure by all the turns and twists we go and seek help in the decision making process. The advisor we choose to follow invariably ends up being someone we agree with, someone of our own mindset. What we should be doing is look to cover from the best of the bulls to the best of the bears, or better still find someone who is neutral and looking from all angles. But we still have our mindset, we begin to pick and choose from the advice given, instead of taking all the advice we are again driven by our mindset. Then we blame the advisor.

The real enemy in the camp is ourselves. Until we take a good hard look at our mistakes and ourselves we will continue to get slaughtered. However every so often we do have a win that confirms to us that we were correct all the time and don't need to look within. It is a vanity verses sloth argument and laziness always wins that fight. I like Warren Buffet's two rules. Rule 1: Don't loose. Rule 2: Don't forget rule 1.

© 2004 Sol Palha
TACTICAL INVESTOR
www.tacticalinvestor.com
info@tacticalinvestor.com

12 March 2004