Much excitement was around yesterday when an announcement was made that Steinhoff was going to acquire an effective 92% stake in retail giant Pepkor for almost R63 Billion. The retailer which is owned in part by Brait private equity firm and Christo Wiese is a massive step in the right direction for Steinhoff some analysts are saying as it becomes more focused on the African consumer.
However when the deal was announced it was said that Steinhoff would only pay Wiese R57 per share of which he has 609 million shares. This spooked some investors who thought the value to be more and what we saw was a massive selloff of over 20 % in the share price by mid afternoon.
In trading I don't think there's a shortage of literature relating to risk management principles with one of them being the adherence to using a stop loss. In my time trading I've come across many traders who have never used them and resulted in their accounts being blown. I thought it would be appropriate to highlight the exact point using the Brait price movement and unfold the emotional distress a trader can experience when positioned in the wrong direction.
If you had to fictitiously take a geared trade on Brait on Monday 24th November 2014 for an exposure of say R100 000, your margin would be R20 000. You went long because you had identified a bullish pattern which indicated buyers strength that would help lift the price. You decide that because the share doesn't trade frequently you leave the trade with no stop loss.
Fast forward to the 25th November and the news comes out which sends the price plummeting to lows last seen weeks ago. By the end of the first hour of trade the price has dropped more than 20%. To put that into perspective, your R100 000 is now worth 20% less which would mean the margin you put up would just be enough to cover the loss. Chances are you'll be getting a call from your broker pretty soon asking you to put down further funds.
You probably panicking and frantically search for an answer regretting your decision that you foolishly left out the stop loss. You start questioning your ability not only to trade but your financial liability you've now created thinking how difficult it's going to be explaining to your loved ones that you lost so much money in a matter of hours.
In the back of your mind there's a little bit of optimism left coaxing you to hold on in case the bounce may materialize but then your urge to sell becomes more prominent as your position is depreciating at an even faster rate.
The fact of the matter is that there are endless amount of possibilities in financial markets and when we execute the trade we effectively take over responsibility for what happens next whether it be good or bad, in most cases we expect it to always be good. However our inability to appreciate the negative outcomes clouds our judgement and places more priority on profits rather than securing the safety of our capital.
Markets have a convincing ability to allow us to form bad habits such as not placing a stop loss. You get by once and you think it always work. Unfortunately there will always be times when a trade works against you which is why its essential that any trade you take, the first step is to place a stop loss before anything else is done. That way your losses are limited to a set amount and the emotions are left at the front door.
Wednesday 26 November 2014
Monday 24 November 2014
How to Deal with the Roller Coaster Ride
Recently I was asked by a person close what it felt like being in the middle of a volatility storm as the one we experienced last month. At first I wanted to describe it as exciting, something a thrill seeker would get a kick from but then I thought about newer traders who had yet to experience these kind of conditions and the emotional response which was awoken through all of this.
In saying this, I thought back to my first experience in these topsy turvy movements and how I had to face up to some of my most scariest trading fears.
When you're still new to the game you'll gather snippets from the pro's on how you see flashes of price movements before your eyes. They immediately bill it as a very unpleasant experience and in the back of your mind you begin to have second thoughts, hoping that these kind of situations don't surprise you anytime soon.
If you ever been on a roller coaster you'll know that anxious feeling you get when you queue in the line and start hearing what others in the queue are expecting. Psychologically you are building up the tension inside and try to rationalise what you're about to do but your fears won't back off.
You're getting closing to the front and your heart is racing, your breathing is restricted and your face turns pale.Your friend turns and says to you "Hey man stop looking squeamish , it's just a roller coaster. Nothing to be scared about". But your anxieties won't go away. You manage to convince yourself that this is it. Time to take the plunge.
The attendant makes sure you're strapped in safely and goes through the whole line. He gives a signal to the controller and suddenly the coaster begins its ascent.
The distance between the coaster and the top of the line is getting shorter and shorter and you're panicking, legs dangling in midair and an eerie silence has taken over the general mood. And then...
Boom the wind blasts your face with rapturous force increasing your anxiety. You tense up and your body feels paralyzed and...Wowwee up and under racing along the track with no limitations twisting and twirling approaching the next bend fast, ready for cork screw.
Sssshhh you going around in a circle at such a fast pace you can't place your direction and that's when you finally let go and let the force of the coaster dictate the control of your body.
The coaster begins to slow down and you start to feel your muscles relax and relief that it's all over until it comes to a halt.
The coaster begins to slow down and you start to feel your muscles relax and relief that it's all over until it comes to a halt.
What I've just explain is what someone who has a phobia of roller coasters , coasterphobia, would experience. This is exactly how it feels when you hit high degrees of volatility. The speed at which it happens is quite fast and violent and there's absolutely no control.
These conditions do blow into the markets every so often and it's imperative for you to know some basics steps to follow if you do encounter them.
Firstly don't try and trade on instinct, there are always temptations when moves such as these materialize. These conditions are quick and you're execution needs to be accurate. Best left to the traders who've had a few years worth of experience to fall back on.
Secondly, ensure that you're strapped up at all times. What I mean by this is your risk management rules. If you are feeling brave and capable enough to trade always make sure you have a stop loss as profitable trades can quickly turn into losses in a matter of minutes.
Thirdly, trade with less gearing, it's always difficult to call when such conditions are going to end so one way of entering a trade without standing the risk of getting stopped out all the time is to begin with a very small position. This way you're allowing your position breathing space and flexibility. Once you're certain the worse is over you can begin building your position to full capacity.
Thirdly, trade with less gearing, it's always difficult to call when such conditions are going to end so one way of entering a trade without standing the risk of getting stopped out all the time is to begin with a very small position. This way you're allowing your position breathing space and flexibility. Once you're certain the worse is over you can begin building your position to full capacity.
And lastly remember that the best thing to do when you don't see high probability setups is sit on your hands and wait for the chaos to subside. Once it has the best opportunities will present themselves.
Wednesday 19 November 2014
The 4 Traits of a Successful Trader
I have to admit that I'm a huge soccer fan and over the years I've built a certain affinity to one team in particular. But today isn't about testing our loyalty to one team or who's currently leading the league. It's about highlighting the advantages of consistency in every area of our lives and how having the right mindset is essential in ensuring long term success.
Sir Alex Ferguson is one of football's most successful managers of all time. His records speak for themselves and the time he spent during his 26 and half years at Manchester United has been described as "the Impossible Dream". His built up a number of teams all of which have been able to exhibit a distinct progression in the game of football.
However what strikes me the most is his performance record over the years. I was able to find them on a Man Utd fan site. According to the website Ferguson was in charge of the Red Devils for a total of 1500 games of which he only won 895. That would give him a win ratio of 59.67%. In other words every time he assembled his team and marched them onto the pitch, he had a 60% chance of winning the game. Under his reign his players scored 2769 goals for the team and only conceded 1365.
Here's a few things I think is most important about the stats
Drawing from the philosophies used by Sir Alex one can see how playing a game is a lot more than just winning. It's about being in control of your emotions and guarding your goals when tough times loom. The real reason people stay in a job that long is because they have a passion for the game, money comes secondary and when you are able to reach that point in your trading journey you'll be able to say that you've successfully mastered the skill of trading.
Sir Alex Ferguson is one of football's most successful managers of all time. His records speak for themselves and the time he spent during his 26 and half years at Manchester United has been described as "the Impossible Dream". His built up a number of teams all of which have been able to exhibit a distinct progression in the game of football.
However what strikes me the most is his performance record over the years. I was able to find them on a Man Utd fan site. According to the website Ferguson was in charge of the Red Devils for a total of 1500 games of which he only won 895. That would give him a win ratio of 59.67%. In other words every time he assembled his team and marched them onto the pitch, he had a 60% chance of winning the game. Under his reign his players scored 2769 goals for the team and only conceded 1365.
Here's a few things I think is most important about the stats
- Although he won 60% of his matches he was able to accumulate a cabinet full of trophies. This speaks so closely to a trader as it does in football. A league isn't won in a single game but rather over a season of games cumulating in the most consistent team winning the cup. In trading we often feel disheartened by one loss but don't realize that it takes more than one trade coupled together with good discipline to build our accounts.
- Ferguson was known to manage his players well both personally and skillfully on the field. He knew each player's attributes and used them to their full potential. Trading is much the same in the sense that each indicator we use should be fully understood and accepting that they don't always workout isn't a train smash. Our jobs is to be consistent.
- The goal difference at the end of his career was a staggering +1404. For every goal conceded the team was able to score 2. When trading it's always imperative to be rewarded with more profits than losses so that you're able to be profitable. It's a simple equation that so few exercise.
- Finally time is the most underappreciated asset of a trader's career. Spending close to 27 years at the helm, Ferguson was able to capture the most prestigious titles in the world because his team was prepared when those moments of glory awaited them. The same goes for a trader. Time is your friend not the foe. Being able to survive the markets in times of drawdowns allows your system enough time to work when the conditions become right.
If you would like to contact me you can through my email at cadetrader@gmail.com or if you wish to
follow me on twitter and get the latest updates of news, interesting commentary
and general trends in the market, my twitter handle is @CadeTradeR if you
follow this link it’ll take you directly to my twitter timeline: https://twitter.com/CadeTradeR
Sunday 16 November 2014
How to Explain Volatility the Politically Correct Way
As the year end approaches I find myself thinking back to the lessons I've been able to learn from over the past year. If I had to point out one aspect of trading that stuck out the most to me it would have to be the volatility.
When volatility finally rears it's ugly head and begins messing around with all rationality the outcomes look disastrous. There is no distinct direction at which the price moves. Buyers and sellers started tussling amongst one another with violent swings from one extreme to the other leaving behind a destructive path of chaos. The uncertainty let loose causes many on the sidelines to watch idly by and seemingly chuckle at the poor souls going through this abrupt disorder.
So folks whats the moral of the story. Quite simply when a market is running nowhere and tempers are running high, sometimes a little commotion can definitely get the ball rolling and keep those buyers or sellers on their feet and besides who doesn't enjoy the fun it brings with it.
Starting from the complacency in the beginning of the year taking our market to all time highs right to the African Bank rights issue debacle which ultimately ended up in the share being suspended until further notice, one things for certain, volatility is the oxygen which ignites the combustible process and aids explosive action when used in excessive quantities.
However in saying this nothing smacks more of volatility than the chaos which erupted in parliament last week Thursday as a disagreement between opposition parties and the Speaker of Parliament turned what was thought to be a normal day in parliament into a circus act.
This spectacle of amusement not only liberated once disinterested viewers of parliament into a mob of reality television worshippers but showcased the true nature of these "Honourable Members" of society.
I'm sure you're scratching your head wondering how this forms any parallels with trading markets. My answer is nothing can come quite close than this textbook example of how complacent volatility set itselfs in and how the opposing side finds the strength to create an uptick and degenerates the situation into pure chaos.
Ever had the feeling when trading a stock it suddenly stops moving your way and just starts to oscillate between 2 points. Quite a frustrating experience, something we've seen happening this week on our markets. We term this kind of movement as "falling asleep". This has also been a frequently occurring theme in parliament over the last 5 years as seen in the picture below.
These kind of movements have be seen on stocks such as AVI or Mondi. They've reached a plateau after a massive run and the ruling trend setters start to lack the substance needed to take the value to greater heights. The opposing side finds just enough excuse to keep the ruling side at bay for a while, stalling prices when necessary.
A really great example which I wanted to share with you is Bidvest which has been "sleeping" for the past 7 months. Let's have a look at the chart
If you had only been watching this stock over the last 7 months chances are you would have got bored and probably thrown it aside waiting for the break out to the upside. If you the type of trader who trades ranges you had a few chances to make some decent money, but if you thought that this condition was going to hang around and continue to go to and fro you'd have been mistaken and got bumped around like an attack from a 3rd force.
These kind of movements have be seen on stocks such as AVI or Mondi. They've reached a plateau after a massive run and the ruling trend setters start to lack the substance needed to take the value to greater heights. The opposing side finds just enough excuse to keep the ruling side at bay for a while, stalling prices when necessary.
A really great example which I wanted to share with you is Bidvest which has been "sleeping" for the past 7 months. Let's have a look at the chart
If you had only been watching this stock over the last 7 months chances are you would have got bored and probably thrown it aside waiting for the break out to the upside. If you the type of trader who trades ranges you had a few chances to make some decent money, but if you thought that this condition was going to hang around and continue to go to and fro you'd have been mistaken and got bumped around like an attack from a 3rd force.
When volatility finally rears it's ugly head and begins messing around with all rationality the outcomes look disastrous. There is no distinct direction at which the price moves. Buyers and sellers started tussling amongst one another with violent swings from one extreme to the other leaving behind a destructive path of chaos. The uncertainty let loose causes many on the sidelines to watch idly by and seemingly chuckle at the poor souls going through this abrupt disorder.
Take note that the above description was how traders would react. The chart show clearly that any trading signal generated would immediately be declared null and void and create mass confusion. There is a few times where the sellers threaten to disrupt the long standing uptrend and bring this share to its knees but the buyers eventually grab a hold of the situation and maintain order and if you've noticed, the last candle on the chart exhibits what will be the breakout everyone was looking for. Bidvest has traded much higher and has resulted in a lot more happy shareholders.
However a striking resemblance to the chart above, watch the video below to see exactly how politicians react to a similar situation in parliament. The similarities are quite remarkable.
However a striking resemblance to the chart above, watch the video below to see exactly how politicians react to a similar situation in parliament. The similarities are quite remarkable.
So folks whats the moral of the story. Quite simply when a market is running nowhere and tempers are running high, sometimes a little commotion can definitely get the ball rolling and keep those buyers or sellers on their feet and besides who doesn't enjoy the fun it brings with it.
Friday 14 November 2014
Nothing Hurts More Than a Missed Opportunity
How often do you hear it? Whether it be around a dinner table, scouring through the internet or even a quick chat with your friend, the spectacular returns made on a trade of a life time. Of course you feel a bit envious, don't we all but today I wanted to fess up and tell you about the trade I never took and what it feels like knowing the potential gains I could've had.
Naspers has had a phenomenal run over the past 5 years with a significant stake in the tech giant Tencent helping the price amass what can only be described as a rally made in heaven. No resistance can keep the price down and in saying that at the beginning of October there came a chance when the market selloff offered a bite at the cherry.
It's not very often that you see a momentum play such as this in oversold territory so the chance was there for the taking, yet my inability to act came from a piece of data I thought to be worrying. The price had reached an all time high of R 1474.95 some time in August of this year and the pullback that we were experiencing suggested that the lows being registered were over 20% from those highs.
Thinking that the sheer drop could trigger a sell off on epic proportions I stayed cleared, content with just watching from the sidelines. But as the market began to bottom out I once again started to show interest. Having been burned by Nasper on a few occasions in the past ( coincidentally going short rather than stick with the trend, another confession I wanna fess up too) I had an inclination towards not taking the trade. I consider it to be pure fear, yet a little over a month later I find it to be pure stupidity.
Although hindsight can be a perfect science, the fact that I had allowed my emotional response to act rather than my trading plan was justified to call it stupidity. The rules when it comes to trading is to trade what you see. I clearly got lost in the emotional mix of it and missed out on an opportunity.
I'm sure I'm not the only trader to have done this and I know I won't be the last. Missing out on movements like these can really put a dent on your confidence to trade. However I like to use a bit of reverse psychology on myself and pat myself on the back for seeing the potential move and being satisfied with my predictions working out. But you should be mindful that the occurrence of these situations don't take place too often because if they do you need to question your emotions in the participation of taking trade.
Finally remember that opportunities such as these don't happen to often but that they will always appear. Knowing that your longevity in the market is a goal you wish to obtain should be enough motivation to ensure that the next time they come around you won't miss the boat or rather in this case the freight train.
If you would like to contact me you can through my email atcadetrader@gmail.com or if you wish to follow me on twitter and get the latest updates of news, interesting commentary and general trends in the market, my twitter handle is @CadeTradeR if you follow this link it’ll take you directly to my twitter timeline: https://twitter.com/CadeTradeR
Naspers has had a phenomenal run over the past 5 years with a significant stake in the tech giant Tencent helping the price amass what can only be described as a rally made in heaven. No resistance can keep the price down and in saying that at the beginning of October there came a chance when the market selloff offered a bite at the cherry.
It's not very often that you see a momentum play such as this in oversold territory so the chance was there for the taking, yet my inability to act came from a piece of data I thought to be worrying. The price had reached an all time high of R 1474.95 some time in August of this year and the pullback that we were experiencing suggested that the lows being registered were over 20% from those highs.
Thinking that the sheer drop could trigger a sell off on epic proportions I stayed cleared, content with just watching from the sidelines. But as the market began to bottom out I once again started to show interest. Having been burned by Nasper on a few occasions in the past ( coincidentally going short rather than stick with the trend, another confession I wanna fess up too) I had an inclination towards not taking the trade. I consider it to be pure fear, yet a little over a month later I find it to be pure stupidity.
Although hindsight can be a perfect science, the fact that I had allowed my emotional response to act rather than my trading plan was justified to call it stupidity. The rules when it comes to trading is to trade what you see. I clearly got lost in the emotional mix of it and missed out on an opportunity.
I'm sure I'm not the only trader to have done this and I know I won't be the last. Missing out on movements like these can really put a dent on your confidence to trade. However I like to use a bit of reverse psychology on myself and pat myself on the back for seeing the potential move and being satisfied with my predictions working out. But you should be mindful that the occurrence of these situations don't take place too often because if they do you need to question your emotions in the participation of taking trade.
Finally remember that opportunities such as these don't happen to often but that they will always appear. Knowing that your longevity in the market is a goal you wish to obtain should be enough motivation to ensure that the next time they come around you won't miss the boat or rather in this case the freight train.
If you would like to contact me you can through my email atcadetrader@gmail.com or if you wish to follow me on twitter and get the latest updates of news, interesting commentary and general trends in the market, my twitter handle is @CadeTradeR if you follow this link it’ll take you directly to my twitter timeline: https://twitter.com/CadeTradeR
Thursday 13 November 2014
How the CadeTradeR Came To Be
I've decided that today that I wanted to unravel the mysterious behind the name of this blog in the hope that it may explain why I decided on using the name and how I try to incorporate it in my articles.
As you will have noticed that when I do write I try bring the experiences of life and trading together so to highlighted the similarities between the two. If you take the time to observe the subtleness of it you'll be quite surprised how the two align. I've always believed that through our lives in between working, studying or even enjoyment there are life lessons to be learnt, valuable experience from which if we are mindful about create greater value to ourselves.
However many times in our lives we are simply too busy to take note of what has happened and most often lose out on the opportunity to embrace the lesson stemmed out from the experience.
I believe we are shaped by our past experiences and our trading journey is not merely a process whereby we simply execute a trade and hope it works out. I believe that the first experiences of a trader's journey should be one of self discovery to find what personality traits we possess or lack and from that point shape our ultimate trading experience. Thus my goal when sharing my personal stories with fellow traders is to evoke their curiosity to search for the trading beliefs they truly believe in which will fundamentally lay down the foundation of their future career as a trader.
I've always been asked, "Why CadeTradeR? " Quite simply because a cadet is a trainee military personnel with no experience at all. When introduced into the rigorous training routine they are broken down physically and mentally and then built on the principles of discipline. They are brought into a ranking system whereby positions are earned through experience, hard work and innate knowledge of the situation.
I've found in my dealings with many traders, old and new, that there seems to be an instant affiliation to the rank of "Trader". But what is a trader exactly. Although we may have glamourous connotation we don't truly appreciate the time it takes to craft oneself into one. It is because of this exact point that I intended on writing down my own experiences as a cadet trader enlightening my readership with my findings of what it is to be a true definition of a Trader.
I wanted to created a concept in which new traders could identify themselves much easily with and at the same time not take away the expectations of a trader. Thus the merge of the two words to form a new definition of a new trader, the CadeTradeR.
The market can be a harsh reality for a person not skilled to foresee the danger which lies around the corner which is why I've left 3 letters in capital form. Each letter forms a trait which I believe is the backbone of most successfully traders and the same needed for CadeTradeR's to ensure their ultimate goal. They are;
I've found in my dealings with many traders, old and new, that there seems to be an instant affiliation to the rank of "Trader". But what is a trader exactly. Although we may have glamourous connotation we don't truly appreciate the time it takes to craft oneself into one. It is because of this exact point that I intended on writing down my own experiences as a cadet trader enlightening my readership with my findings of what it is to be a true definition of a Trader.
I wanted to created a concept in which new traders could identify themselves much easily with and at the same time not take away the expectations of a trader. Thus the merge of the two words to form a new definition of a new trader, the CadeTradeR.
The market can be a harsh reality for a person not skilled to foresee the danger which lies around the corner which is why I've left 3 letters in capital form. Each letter forms a trait which I believe is the backbone of most successfully traders and the same needed for CadeTradeR's to ensure their ultimate goal. They are;
- Consistent: The manner in which we trade needs to be consistent at all times taking into account risk management, the most important part of the trading process because without it our success will be diminished dramatically.
- Tactical: Having a plan on hand and understanding the reasonings behind entry, exit or delay of a trade thus bringing a degree of measurement to our expectations.
- Resilient: The most important trait is resilience as a traders journey is full of highs and lows (no pun intended) and our abilities to deal with the realities of trading truly and honestly will speed up the process of understanding.
Follow these 3 traits and you'll be equipped to escape the fallacies most commonly found throughout the Trading Community.
A school teacher of mine once told me "Humility before Honour" which is none truer than in the markets. The market is a much greater force than one trader. We have no control of it, we serve the market in forms of liquidity and in turn the market rewards us based on our discipline. There's no need to act perilously, respect the market and it respects you.
I hope that this article has inspired you to come back and read my progression through the trials and tribulations in my own trading journey and maybe it creates much awareness to form a community of like minded traders to share our journey to a common goal.
If you would like to contact me you can through my email at cadetrader@gmail.com or if you wish to follow me on twitter and get the latest updates of news, interesting commentary and general trends in the market, my twitter handle is @CadeTradeR if you follow this link it’ll take you directly to my twitter timeline: https://twitter.com/CadeTradeR
I hope that this article has inspired you to come back and read my progression through the trials and tribulations in my own trading journey and maybe it creates much awareness to form a community of like minded traders to share our journey to a common goal.
If you would like to contact me you can through my email at cadetrader@gmail.com or if you wish to follow me on twitter and get the latest updates of news, interesting commentary and general trends in the market, my twitter handle is @CadeTradeR if you follow this link it’ll take you directly to my twitter timeline: https://twitter.com/CadeTradeR
Monday 3 November 2014
Strengthening Dollar, Weak Chinese Economy Hurting Resource Stock
Over the last few months as many have watched the Dollar grow stronger versus all major currency, global commodities have taken a hard hit as a result. The JSE Resources 20 index is no exception with much talk going on amongst various market commentators debating whether the Resources Boom we experienced pre-financial crisis might have come to an end.
In saying that we need to take account of the dip in economic growth we've seen coming out of China and the sustainability of that. Still there are large pockets of potential within China that remain untapped yet there seems to be a constant overshadowing of debt problems stemming from the massive drive in the growth rate. With the level of debt at these levels one does get the feeling that the Chinese consumer might be feeling the constraints and thus restrict spending. What's added further pressure to the commodities slump is mainland China's efforts to curb supply from abroad by opening inefficient operations within its own borders namely iron ore.
With that being said I wanted to focus on the resources sector in the South African context since our partnership with China is increasingly leaning towards a more dependent one.
The chart I want to focus on today is the JSE Resources 20 Index, which represents the 20 largest listed resource companies listed on the JSE. These companies range from diversified miners all the way to gold mining which has seen a tremendous downturn in prices from it's glory days.
The timeframe I'm using here is a Monthly over the last 10 years. The first thing we want to identify major support and resistance. We can pinpoint those to 45 000 and 60 000 respectively. We see that from 2010 the index has been range bound. What strikes my interest is during the first half of 2013 the level of the index fell below the 45 000 mark as indicated by the circle.
It seems as if a fight ensued between the bulls and the bears which resulted in high levels of volatility with the bulls as eventual winners driving the index back to 60 000. That would indicate some resistance on the part of the bulls to allow the level to go further than 45 000.
We are now approaching the all important support level of 45 000 once again and it will be interesting to see how the bulls will react. Two possibilities can happen. The first being the bulls being able to push the index up again thus reinforcing the range bound trading environment we have been experiencing or second, the bears gain sufficient strength to break deeply into bull territory so as to chase them off. If that were to happen we would likely see the index fall further to financial crisis levels of 30 000.
I see the second scenario as rather unlikely but in financial markets you can never write off any possibility. The way it stands right now I would be steering clear of resources stock for the moment to allow that possibilities to unfold themselves and once I have strong confirmation of the direction I'd begin to trade again.
The chart I want to focus on today is the JSE Resources 20 Index, which represents the 20 largest listed resource companies listed on the JSE. These companies range from diversified miners all the way to gold mining which has seen a tremendous downturn in prices from it's glory days.
The timeframe I'm using here is a Monthly over the last 10 years. The first thing we want to identify major support and resistance. We can pinpoint those to 45 000 and 60 000 respectively. We see that from 2010 the index has been range bound. What strikes my interest is during the first half of 2013 the level of the index fell below the 45 000 mark as indicated by the circle.
It seems as if a fight ensued between the bulls and the bears which resulted in high levels of volatility with the bulls as eventual winners driving the index back to 60 000. That would indicate some resistance on the part of the bulls to allow the level to go further than 45 000.
We are now approaching the all important support level of 45 000 once again and it will be interesting to see how the bulls will react. Two possibilities can happen. The first being the bulls being able to push the index up again thus reinforcing the range bound trading environment we have been experiencing or second, the bears gain sufficient strength to break deeply into bull territory so as to chase them off. If that were to happen we would likely see the index fall further to financial crisis levels of 30 000.
I see the second scenario as rather unlikely but in financial markets you can never write off any possibility. The way it stands right now I would be steering clear of resources stock for the moment to allow that possibilities to unfold themselves and once I have strong confirmation of the direction I'd begin to trade again.
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